Good day, and welcome to the Saia, Inc. Hosted Fourth Quarter and Full Year 2020 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Douglas Col. Please go ahead, sir.

Thank you, Loren. Good morning, everyone. Welcome to Saia’s fourth quarter 2020 conference call. With me for today’s call is Saia’s President and Chief Executive Officer, Fritz Holzgrefe. 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 that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the risk factors that could cause actual results to differ. Now I’d like to turn the call over to Fritz for some opening comments.

Good morning, everyone. I'm pleased to welcome you to this call to review our fourth quarter and full-year results. I'm also pleased to take this moment to say goodbye to 2020. Last year brought all of us plenty of challenges, both professionally and personally. We learned that we were capable of pulling together as a team to deal with the crisis. Not only did we adapt quickly to changing conditions across our network brought on by COVID-19, but we did so while maintaining a high level of service. In 2020, we delivered 98% of our shipments on time despite experiencing periodic shortages of employees on any given day due to the pandemic. Protecting customers' freight remained a priority for our employees, and our 2020 cargo claims ratio of 0.66% was a record. I'm very proud of our team for providing the type of service for our customers and pleased that we could do our part and deliver essential goods during these difficult times. It is exciting today to discuss our record fourth quarter and full-year results. Business volumes really never tracked historical trends after the downturn in mid-March, and then swing rebound in April continued into the fourth quarter. In the fourth quarter, daily shipment activity remained steady, and shipments per workday for the full quarter rose 3.6% compared to last year. Weight per shipment rose 2.3% for the full quarter, and tonnage per workday increased 6% year-over-year. Our operations team executed extremely well in 2020, and we were well-positioned to handle better-than-expected late December shipment volumes. Shipments rose 3.5% this December against a difficult year-ago comparison, where December 2019 shipments increased by 10%. The pricing environment remained stable throughout the pandemic, and we continue to focus our pricing strategies and identify the optimal mix of business while ensuring that we were compensated for our strong service execution. If anything, the continued tightness in the driver market, worsened by the pandemic, and the increased cost of purchased transportation has made carriers even more focused on pricing in the face of these cost pressures. I'm extremely pleased to report that revenue per shipment, excluding fuel surcharge, rose 6.5% in the fourth quarter, and despite fuel surcharge revenue being down 13% year-over-year, we still managed to improve revenue per shipment, including the surcharge, by 3.5%. This improvement in revenue per shipment plays a key role in improving margins. I'm proud to report that our fourth quarter operating ratio of 89.4% is a record. Our revenue in 2020 was a record $1.8 billion, surpassing last year's record revenue by 2%. Operating income also grew by 18% to a record $180 million. I'm now going to turn the call over to Doug for a few more detailed comments about the fourth quarter and full-year results.

Thanks, Fritz. Fourth quarter revenue was $476.5 million, up $33.4 million or 7.5% from last year. The year-over-year revenue increase was the result of 6% growth in tonnage per workday, our yield excluding fuel surcharge improvement of 4.1%, and a 6.1% increase in length of haul. Revenue per shipment grew 3.5% to $246.88. Offsetting these tailwinds, fuel surcharge revenue decreased by 12.9% and was 10.5% of total revenue compared to 13% a year ago. Moving now to key expense items in the quarter. Salaries, wages, and benefits increased 3.6%. This was largely driven by our employee utilization of paid time off in the quarter compared to the prior year. Health insurance costs were essentially flat year-over-year, with inflationary costs being offset somewhat by lower usage of benefits by our employees. Purchase transportation costs increased 42.1% compared to last year. As a percent of total revenue, purchase transportation costs were 9.4% compared to 7.1% in the fourth quarter last year. The increase is primarily tied to an approximate 76% increase in purchased truck and rail miles compared to last year. In the quarter, we faced pandemic-related driver shortages in some markets and were able to meet the stepped-up demand with purchase line haul capacity. Purchase transportation miles were 16.3% of total line haul miles in the fourth quarter. Fuel expense fell by 30.7% in the quarter, while company miles decreased 2% year-over-year. National average diesel prices were approximately 20% lower throughout the quarter than in the same period a year ago. Claims and insurance expense decreased by 27.3% in the quarter, reflecting decreased frequency and accident severity in that expense line, serving to offset the higher year-over-year premium costs. To put that in perspective, the $3.4 million expense decrease compared to the prior year would have been favorable by another $1.5 million if not for premium increases we experienced. Also, to illustrate the volatility in this expense line, I would note that claims and insurance expense was down 24% or $2.8 million sequentially from the third quarter. Depreciation expense of $34.2 million in the quarter was 7.2% higher year-over-year. This is a continuation of the trend we have seen over the past few years as we've grown our terminal network, invested in equipment to lower the age of our tractor and trailer fleet, and made meaningful investments in technology. Overall, operating expenses increased by 2.5% in the quarter. With a revenue increase of 7.5%, our operating ratio improved by 440 basis points from a year ago. Our tax rate in the fourth quarter was 19.8% compared to 18.1% last year, and our full-year tax rate was 21.5%. Fourth quarter diluted earnings per share were $1.51 compared to $0.81 last year. Moving on to the financial highlights of our full-year results. As Fritz mentioned, revenue was a record $1.8 billion and operating income of $180.3 million was also an annual record. Our operating ratio for the full year improved by 140 basis points to a record 90.1%. For the full year 2020, our diluted earnings per share were a record $5.20 versus $4.30 in 2019. In 2020, we made capital investments totaling $231.1 million. We reduced our net debt position by $90.5 million in 2020. And we entered 2021 with $25.3 million in cash on hand. In 2021, we anticipate capital expenditures will be approximately $275 million. Also, at the beginning of 2021, we implemented a wage increase across our workforce, which averaged approximately 3.5%. I will now like to turn the call back to Fritz for some closing comments.

Thanks, Doug. Just a couple more comments before we open this up for questions. In 2019, we made significant investments across the company, particularly in the Northeast. For 2020, our team was focused on operational execution, with an emphasis on integrating the new operations into the broader network. COVID-19 provided an unexpected challenge, which tested our execution, particularly in Q2. We emerged from the COVID-19 business decline and posted records in both Q3 and Q4. Throughout, our management team stayed focused on the safety of our employees and customers while continuing to deliver differentiated service and meeting our customers' freight shipping needs. COVID-19 continues to pose daily challenges across our 169 terminals, creating a level of unpredictability for both our customers and our operations. We expect these challenges to continue for the near future. At the same time, our strategy extends into 2021 with a clear focus on execution and delivering the services that our customers expect. This focus supports ongoing efforts to optimize our mix of business, while being compensated for all the service that we provide. In 2020, we opened a terminal early in the year near Burlington, Vermont. In the fourth quarter, we moved into our new 200-door cross-dock facility in Memphis, Tennessee. The new Memphis terminal is 60% larger than the facility it replaces and should accommodate significant expansion over time. As we think about our growth in 2021, we plan to open a new terminal this quarter to service customers in the Wilmington, Delaware area and plan to open an additional four to six terminals throughout the year, including our Northeast, Atlanta terminal targeted for the fourth quarter. These terminals will enhance our service across the geography, while also providing reach into new markets as we seek opportunities to build our long-term pipeline of coverage in 2021 and beyond. Despite the operational challenges, Saia is positioned to continue executing our plan into 2021 and beyond. With that said, we're now ready to open the line for questions, operator.

Thank you. Our first question comes from Amit Mehrotra with Deutsche Bank.

Thanks, operator. Hi, Fritz. Hi, Doug. Congrats on the results. I have one shorter-term question and one longer-term question. First, on the shorter-term side, wondering if you can give us January shipment and weight trends, and how it feels out there from a demand and customer perspective? And then also, could you provide OR trend sequentially? I know it usually deteriorates fourth quarter to first quarter, but if you can give us a little color there as well. Thanks.

Sure. Hi, Amit. I should have the October and November trend numbers, but the December shipments were up 3.5%, and tonnage was up 5.2%. In January, shipments were up 1.1% and tonnage up 5.6%. So the January numbers are again against a pretty healthy comp like December was. January shipments a year ago were up 8%. We also implemented a general rate increase on January 18th of approximately, averaged approximately 5.9% across our tariffs. So we've seen a little bit of impact of that on the shipment side, but weight per shipment is up nicely, and we’re growing tonnage and hopefully improving our mix.

And then the OR comment sequentially?

Yeah. Historically, like you said, I mean, it's been a pretty tight range historically. Sometimes weather dependent. But we'd say, historically, adjusting for the accidents and severe weather weekends, it's probably flattish quarter-to-quarter, and we would hope to be able to do that again. This year, we gave the wage increase on January 1st, and we're seeing fuel costs trend back up a little bit. But we would hope that we can keep it steady with where we operated in Q4.

Okay, that's encouraging. And for my long-term question, if I look at the revenue per shipment, revenue dollars per shipment, it's quite a bit lower than other non-unionized LTLs, over 30% below what OD is doing, and over 10% below what XPO is doing. Can you just talk about the focus you guys have from a pricing and mix perspective? What is the actual opportunity to narrow that gap? And what should be the reasonable expectation for your ability to continue closing or narrowing that gap over the next couple of years?

Sure, Amit. When we look at that, and we've highlighted in the call comments, we're very, very pleased with our service performance in the second half of the year. Through the pandemic, the claims ratios were record low, and our operations team did a phenomenal job taking care of customers. However, when you look at those national carriers that you pointed out, we need to get paid for that level of service, which is some of the best in the industry. It's expensive to run this business, and we have to charge for it and improve the mix of business to find those customers that really value the outstanding service that we've been able to deliver. As I think about it, it's not going to happen overnight, but I think we continue to work hard at closing that gap against those larger national carriers. You can see the performance we had in Q4; that's the playbook, and we need to keep executing that while focused on getting paid for the service that we're providing. We've shown that we can do it, and now we need to continue to execute that plan.

Amit, I would add too that you see evidence of our work on mix and also the benefit of expanded geographies. If you compare our yield performance and our revenue per bill performance, yield excluding fuel surcharge in the fourth quarter was up 4.1%, and we actually grew revenue per shipment excluding fuel by 6.5%. Our length of haul was about 6% longer year-over-year, and the mix opportunities that Fritz mentioned will help us grow revenue per bill in excess of our yield growth.

Okay, that's helpful, guys. Thanks a lot. Appreciate it.

Thanks, Amit.

Thanks, Amit.

Our next question comes from Todd Fowler with KeyBanc Capital Markets.

Hey, great. Good morning, Fritz. Good morning, Doug. Fritz, in your prepared comments at the end, you went through the cadence of the last couple of years, the growth shifting into execution. As you think about going into '21 and '22, you talked historically about 150 to 200 basis points of margin improvement on an annualized basis. Is '21 a year where you're in that range, is that something better than that range, given the investment that you've made? How do you think about the cadence of OR longer term at this point?

Yeah, thanks. It’s a good question. One of the things that we've focused on, as you rightly pointed out, is execution through the pandemic. We felt like we've executed well in that environment. As we get to 2021 and beyond, it's really about what the overall freight environment looks like, which continues to be favorable. I think we can exceed the range that we've talked about historically of 100 to 150 basis points; we should be above that. How strong the market is remains to be determined. But what's important right now is that we’re in a position where we continue to focus on pricing, which flows through to the bottom line quickly. We're excited about the terminal openings we have, and I think we should be able to absorb that without being a drag on our profile. Certainly, if we had to accelerate due to opportunities that arise, we would do that. Ultimately, I think we're in a good range where the market is favorable, we see growth opportunities, pricing initiatives are critical, and I believe we can continue to improve and likely be above the historical range.

Okay, that's great. That's really helpful. Can you also talk a little bit about your philosophy and thoughts on using purchase transportation, how it structurally differs from your model and Old Dominion? In an environment like we saw in the second half of '20, with truckload linehaul ratios moving up, how do you think about the right mix of purchase transportation in your network and either bringing that down over time or maintaining at a certain level?

Thanks, Todd. Doug, and I will combine on this answer. We lead with the philosophy that we are a margin-driven company. We utilized more purchase transportation in the fourth quarter to meet customer expectations and service requirements. We price it the right way, and it worked for us while achieving an 89.4 operating ratio. Over time, of course, we want to find ways to leverage our own assets where we can, but ultimately, our decision revolves around driving the operating ratio. If we can achieve our OR targets and need to use PT to do that, we will. It's important that we find ways to leverage our infrastructure.

I would add that while the PT on the truck side saw price inflation last year, the way we buy it with committed carriers allowed us to avoid the extreme volatility in our rates. In Q4, our truck pricing year-over-year for truck miles on the PT side was up low single digits, allowing us to successfully manage costs. Rail pricing year-over-year became favorable for us, but we faced challenges in getting enough rail miles to meet our needs.

Okay, so if you're flexing up and using more PT in the fourth quarter, you're able to get compensated from your customers as a result of that, correct?

Right. Normally you'd see the highest peak usage for us in the strongest part of the year, historically in the second and third quarters. We're using PT historically in those periods to meet seasonal demand, while also accounting for peak vacations. This year was unique; we saw demand pick up strongly in Q3, and the PT helped satisfy that without too much of a tail-off in a typical fourth-quarter drop.

Got it. Thanks so much for the time this morning, guys.

Thanks, Todd.

Our next question comes from Scott Group with Wolfe Research.

Hey, thanks. Morning, guys. Can you talk about the renewal trends in the quarter? Also, help us out with the big increase in weight per shipment. How should we think about yield trends either in January or the first quarter?

On the contractual renewal side, we saw a nice bounce back in Q3 and Q4. They were up 6.9% on average in Q3 and 6.6% in Q4. This reflects shippers' expectations for higher rates returning in the second half, which we felt in our renewals. For January, yield side is low to mid-single digit yields level that we’re seeing and need to maintain. Our cost inflation on a per shipment basis is typically around 3% or 4%, thus we need to price to account for that.

Scott, I’d add that around weight per shipment. We're focused on optimizing or taking advantage of driving weight per shipment into better categories of freight. It's all a combination of underpinning rates and driving the mix.

Got it. And just to clarify, the low to mid comments you're making there refer to the per hundredweight basis, so obviously a good amount better on a per shipment basis, right?

Yeah, the yield commentary for price and our work on mix hopes to grow revenue per shipment at a better rate.

And can I just ask, regarding the driver pay increase in January: I think you typically do it later in the year; was it pulled forward, or might we see two increases this year?

Scott, we always want to be competitively paid. We put that in place because we didn't have a similar one last year. We added additional compensation either in paid time off or a one-time bonus to effectively change the compensation mix for drivers last year. This year, we'll continue to focus on competitive pay. Could we make a change later into the year? That’s possible but remains to be seen. We know it's inflationary and a competitive driver environment, so we have to pay competitively, monitoring it closely.

Thanks, guys. Appreciate it.

Thanks, Scott.

Our next question comes from Jack Atkins with Stephens.

Great. Good morning, thanks for taking my questions. Thoughts on new terminal openings this year? With one terminal in the first quarter and perhaps four to six more over the remainder of the year, how are you thinking about new versus existing markets with those numbers? Can you give us a sense of the order of magnitude increases in '21 versus '20?

The terminals we have on the docket will look on average like the rest of Saia's network. North East Atlanta will be a larger facility; being an existing market, we're splitting up Atlanta. The expansion will allow for better service and reach customers we haven't serviced before in the area. Wilmington, Delaware is a sort of incremental opportunity. We're also targeting growth across legacy markets; I would think the best approach is keeping an average size terminal in mind.

To frame it, even though we only had one new opening in 2020, our door count increased by a little more than 4%. We relocated to larger facilities in Memphis as well. The door count grew, but it should exceed that if we're successful this year.

Thanks for that. On the expense side, how are you thinking about inflation and cost per shipment in 2021? Can you help us bracket that? There are many moving pieces with PT and labor, along with the network expansion.

In 2020, cost per shipment was lower than normal, but historical trends show trends at around 3.5%. Going forward, you’ll see the claims and insurance line drift up. As mentioned, salaries, wages, and benefits are under constant inflation pressure, so I think looking around a 3% to 4% in terms of trends per shipment would be reasonable.

Understood. Thanks again for the time, guys. Appreciate it.

Thanks, Jack.

Our next question comes from Jason Seidl with Cowen.

Thank you, operator. Fritz, good morning, thanks for taking the time. I wanted to discuss your business mix, how it's breaking out between consumer and industrial. Do you expect that to change as we move through the year? The industrial economy could come back, right?

In terms of changing, we saw a little bit of it in the middle of the year with the pandemic, and residential deliveries increased up into the mid-teen range on the percent of our shipments. That's back down now to the high single, low double-digit range. Industrial still constitutes 60% to 65% of the freight we haul. In the future, we may see that grow a bit, driven by a growing willingness to order heavier weighted goods online.

Great. I also wanted to talk about TFI and the acquisition with UPS Freight. I would think that's a positive for pricing in the LTL market. How often do you run into UPS Freight in the marketplace? Out of curiosity, how large is your agreement with TST Overland?

We are familiar with TFI and specifically TST; we've worked with them well over the last several years. We would see UPS Freight in the marketplace; they didn't have the same level of investment as other LTL carriers. We don’t expect any meaningful impact on our TST relationship due to TFI’s acquisition, but we hope to see a positive marketplace impact overall.

Thank you for the color, gentlemen. I appreciate your time and stay safe.

Thanks, Jason.

Our next question comes from Jordan Alliger with Goldman Sachs.

Just a follow-up on purchase transportation, as you think about the year ahead, particularly with terminal openings and elevated demand. Do you feel that you'll be able to handle more of your own staffing within the year? Or do you think PT stays at these levels throughout the course of the year?

I expect usage to moderate somewhat compared to what we experienced coming out of the shutdown during the pandemic. But if you're not buying PT, you're paying for an alternate cost. If we can hire drivers, we'll start using more of our own power over time.

Thanks for that color. I appreciate your time.

Our next question comes from Tom Wadewitz with UBS.

I wanted to go back to your comments on December and January tonnage. Can you share thoughts on whether January is representative of expectations? Or do you think that it might be a one-off, especially given the GRI impact?

It's hard to say. December's shipments only dipped 4% from November historically. January was flattish with December trends. That's typical when the pandemic impacts the shipments as demand picks back up. It’s too early to predict February's performance.

On to other revenues, it looked strong in the fourth quarter. Can you review what drove that and its flow to the bottom line?

It's a similar flow; we've had success cross-selling our LinkEx services, logistics, and brokerage services. We've seen good trends. We probably gained from a shipment of medical supplies as well, but it's a small piece of revenue overall.

Great. Thank you for the information.

Our next question comes from David Ross at Stifel.

Good morning, gentlemen.

Good morning, David.

Just one for you here. How new is the MABD service? How is it helping volume growth? Are you able to charge a premium for it?

We implemented it through 2020. It's an opportunity to differentiate. If we can provide that incremental level of assurance for a customer, it allows us to charge for that, so it supports our suite of services moving forward.

Our next question comes from Jon Chappell with Evercore ISI.

First off, I think the Northeast Atlanta example is great! It could help with both productivity and pricing. Are there examples of how you can replicate it in other legacy markets like Texas?

That’s not the first time we've done this. In Dallas, we have two facilities, if you think of the geography centered east, we added Fort Worth for positive impact. In the LA basin, we added Long Beach; we also added a second terminal in Seattle. Two facilities in Chicago present an opportunity, and Houston could use a second facility too. We're opportunistic about geographic opportunities to be in service closer to customers while providing the efficiency gains.

To highlight, we only added one new terminal in 2020, but our door count was up just over 4%. We had positive relocations into bigger facilities as well.

Can you comment on your cash flow relative to CapEx this year and what your plans are for organic and inorganic growth?

We want to own strategic assets and have a strong balance sheet that allows us to make those dry powder investments. However, we would need the right location at the right price if the opportunity becomes available.

Good morning, congratulations on strong results. I wanted to talk about the operating ratio; what aspects of 2020 were unique that allowed the operating ratio improvement to be what it was?

There are no structural disadvantages; we can achieve a low ‘80s OR. Compared to national carriers, they certainly have some reach. Thus, expanding our footprint will help. The biggest value driver remains pricing and mix. If we provide great service, we have a better opportunity to get paid for it.

Can you give me an update on the congestion in the rail network?

Overall demand remains strong, but we have been unable to get as much rail capacity as we could use with the increase in bottlenecks in the rail network. Our mix of PT miles was about one-third rail in the fourth quarter, which generally raised costs.

Thank you, gentlemen.

Sure.

And that concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Fritz Holzgrefe for any additional or closing remarks.

Thank you to all on the call. We appreciate your interest and long-term support at Saia and look forward to an exciting year in 2021 as we continue to execute on our plan. Thank you, and have a good day.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.