Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Saia Inc.'s First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the conference over to Doug Col, Saia's Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thanks, Regina. Good morning, everyone. Welcome to the 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 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 thank you for joining us to discuss Saia's first quarter results. While it's always more exciting to discuss robust shipment trends and record margins, today's call will be more about how our team managed through a challenging volume environment and produced what I view as solid results in the first quarter of 2023. In the quarter, we averaged approximately 28,500 shipments per day, which is about 7.1% fewer shipments per day than in the same quarter last year. We experienced an increase in the average weight per shipment as tonnage fell by only 5.5%. The mix shift to a heavier average weighted shipment, along with positive pricing, drove a 6.3% increase in average revenue per shipment, excluding fuel surcharge, and total first quarter revenue was $660 million, essentially flat with last year despite the falloff in volumes. Our revenue per shipment, excluding fuel surcharge, continues to be the result of positive pricing and effective mix management. Our yield or revenue per hundredweight, excluding fuel surcharge, increased 4.5%, reflecting a constructive pricing backdrop. We saw some of the benefits of our geographic expansion in the quarter as West Coast volumes were down significantly year-over-year; we're very pleased with the results in some of the middle markets that we have entered or invested in over the last several quarters. Further evidence of stable industry pricing was seen in our average contractual renewal increases of 7.5% in the first quarter. We're committed to providing excellent service to our customers, and we are investing heavily in the business to expand coverage, and it is gratifying to see that our customers see value in our service offering. Our first quarter operating ratio of 85 deteriorated by 60 basis points compared to our operating ratio of 84.4 posted in the first quarter last year. Doug will provide some details around the specifics of our margin performance, but I'd like to highlight the operational execution in the quarter. We're able to adjust our linehaul infrastructure and quickly adapt to the changing macro environment across our network. We saw productivity improvements across all of our major terminals. The net result of these changes allowed us to manage operating costs quickly. Most significantly, these changes had no impact on the customer experience. In fact, in some cases, we actually reduced transit times. I'll now turn the call over to Doug for more details from our first quarter results.

Thanks, Fritz. As mentioned, first quarter revenue decreased by $0.7 million to $660.5 million. Yield, excluding fuel surcharge, improved by 4.5%, and yield increased by 5.8%, including fuel surcharge. Tonnage decreased 5.5%, attributable to a 7.1% shipment decline, slightly offset by a 1.8% increase in our average weight per shipment. Length of haul decreased by 2.5% to 892 miles. Both the increase in weight per shipment and the decrease in length of haul were a headwind to the reported yield improvement. Fuel surcharge revenue increased by 5.6% and was 17.8% of total revenue compared to 16.8% a year ago. Revenue per shipment, excluding fuel surcharge, rose by 6.3% to $289.87 compared to $272.58 in the first quarter of 2022. Shifting to the expense side for a few key items of note in the quarter. Salaries, wages, and benefits increased 3.3% from a combination of our July 2022 wage increase, which averaged 4.3% across our employee base, and also the result of our employee headcount having grown by approximately 1.5% year-over-year to support our network expansion over the last 12 months. Purchased transportation expense decreased by 40.3% compared to the first quarter last year and was 7.1% of total revenue compared to 11.8% in the first quarter of 2022. Fuel expense increased by 2.5% in the quarter, while company miles increased 3.2% year-over-year. The increase in fuel expense was primarily the result of national average diesel prices rising by over 4% on a year-over-year basis. Claims and insurance expense increased by 31% year-over-year in the quarter and was down 10% or $1.6 million sequentially from the fourth quarter of 2022. Depreciation expense of $42.9 million in the quarter was 7.3% higher year-over-year, primarily due to the onboarding of new equipment and structures as part of our continued network growth. Total operating expenses increased by 0.6% in the quarter and with year-over-year revenue decrease of 0.1%, our operating ratio deteriorated to 85.0 compared to 84.4 a year ago. Our tax rate for the first quarter was 23.2% compared to 22.5% last year, and our diluted earnings per share were $2.85 compared to $2.98 in the first quarter a year ago. I'll now turn the call back to Fritz for some closing comments.

It's always nice to get the first quarter and all the weather challenges behind us. Moving to our typically seasonally stronger months of the year, we're seeing what I would call a tepid start to the spring season. Shipments per day are up in April compared to March, but March underperformed normal seasonality, and we entered April off a lower base of daily shipments. We track, monitor, and manage our customer metrics on a daily basis. It is gratifying to see Net Promoter Scores from our survey work indicate that we're on the right track and our customers are seeing increasing value in the service we provide. This continued focus is absolutely critical to drive growth across our network. We've opened four new terminals in 2023, including the opening this past week of our new Northeast Atlanta facility. This opening is one of the most vibrant freight corridors in the state. It's exciting to see the immediate customer enthusiasm as well as the positive operational impact as we're able to more efficiently provide outstanding service. This opening is a prime example of adding a location in a great freight market where we have a presence for a long time, but still have excellent share opportunity. All of these openings, both the new and relocated terminals, are important to our strategy of enhancing our service offering. While our pipeline for terminal openings carries well into 2025, keep in mind that the key benefit of our organic expansion strategy is that it allows us to go at a pace that suits us. Our business is subject to cyclicality, and depending on where we are in the cycle, we may see an opportunity to accelerate or slow our terminal expansion activities. We have one additional terminal opening coming in May and expect to open two to three additional terminals in the second half in established markets. We'll continue to update all of you quarterly on any changes in our opening plans. Each new terminal opening supports our strategy of getting closer to the customer and adding value to their supply chain. At the same time, we continue to develop the markets around the other 21 facilities we've opened over the last two years. Although we're excited by the early success of these locations, we see considerable runway to continue penetrating these markets. We continue to see great response from our existing customers, who are asking us to handle their freight needs in these new markets. And as our brand grows in the market, we pick up additional customers that are new to Saia. So before moving on to questions, I'll just say that our current view of the pricing environment remains constructive, and indications are that cost inflation will continue in the business. Pricing to maintain and improve margins is critical in an inflationary cost environment, and we'll continue to do our part for our customers by providing great quality and differentiated service to justify the pricing. With that said, we're now ready to open the line for questions, operator.

Our first question comes from the line of Jack Atkins with Stephens. Please go ahead.

Okay. Great. Good morning, and thank you for taking my questions. So I guess just to start, if we can kind of go back, Fritz, to your comments on April and maybe some clarity on March as well. Could you talk about what you've seen relative to normal seasonality, whether it was in March versus February and then April versus March? And then if you could maybe provide the year-over-year change so far in terms of April tonnage, I think that would be helpful.

Sure, Jack. Good morning. In terms of seasonality, Q1 felt fairly typical. Early January likely benefited a bit from the significant activity in late December. Historically, January performed slightly better, while February fell short compared to January. The transition from February to March was consistent. So far in April, we've observed an increase in daily shipments in the low single-digit percentage range, which is normal given the lower base from March. As of now, shipments for April are down about 5% year-over-year, but we've noticed an increase in weight per shipment. This means that tonnage for April to date is down by less than 1%. This increase in heavier LTL shipments is boosting our revenue per load, which is crucial for maintaining performance and profitability. For the first quarter, January shipments were down 4% year-over-year, with tonnage down 3.7%. February saw shipments decrease by 7.6%, and tonnage was also down by 7.6%. March had an easier comparison, and shipments were down by 9.4%, though there was a good increase in weight per shipment, resulting in tonnage only decreasing by 5.2%. So far in April, tonnage is down by less than 1%.

That's great. I believe it was a really positive outcome in April as well. For my follow-up on that, Doug, I've heard others mention some challenges with their 3PL-related traffic, particularly regarding shifts in market share. I know Saia has been working to reduce some of that business from the network over the last couple of years through specific price increases. Where do you currently stand on that? What percentage of your business is approximately related to 3PLs? Is that one of the factors helping you manage this situation more effectively?

Our 3PL business currently represents a smaller portion of our operations, around 4% to 5%. We are aiming for profitable growth in this area, and if we find opportunities for expansion, we will pursue them. However, it's crucial that we do so on our own terms, ensuring that we can deliver exceptional service and operate efficiently.

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

Thank you, operator. Good morning, gentlemen. Talking a little bit about that sort of sequential move from 1Q to 2Q. Since the tonnage is faring, I think, a lot better than your peers. How should we think about that typical OR move sequentially?

Good morning, Jason. Typically, there is a strong seasonal increase in the second quarter, which historically results in much better operating ratios compared to the first quarter. On average, this has usually been around 200 to 300 basis points over the last several years. We can't predict exactly what will happen with volume in May and June, especially since industrial activity has been somewhat muted recently. However, we still anticipate revenue in the second quarter to be higher than in the first quarter, which should help a bit. If we see positive revenue growth from one quarter to the next, we will aim for some improvement in the operating ratio. An increase of about 100 basis points would be less than the seasonal average, but given the current environment and the 21 terminals we opened over the last two years, which were meant for long-term use, we are navigating through a challenging period. With slightly better sequential revenue, we will strive for some improvement, and achieving a 100 basis points gain would be something we would be satisfied with at this point.

I think it's clear that you have opened these terminals. I also wanted to discuss the weakness you mentioned coming off of a poor March. Can you elaborate on that weakness? Was it primarily on the retail side, the industrial side, or was it more balanced between the two?

I would say the performance was fairly even across different sectors. However, I want to highlight that we experienced a decline in West Coast volumes compared to the previous year, which we found significant. This decline seems to be related to port activities and affected the entire business. What excites me, though, is our focus on emerging middle markets, which we have successfully grown to help mitigate some of that impact. This reflects a certain level of maturity in our network and our business overall. In the past, such challenges could have been harder for us to manage, but we have managed to offset a portion of this decline through our diverse business. Overall, while I am pleased with the performance we see across various markets in the country, it's important to note that the West Coast has been weak compared to last year.

Did you notice an increase in activity around the East Coast ports, such as New York, New Jersey, or Savannah?

Yeah. We saw a little bit there, but I think for sure, we did. But I think what I'd tell you is that our performance has been a bit more broad-based around just around growing the developing markets for us, either terminals that we've opened in the last two years or, frankly, just as you build that network density, you have the opportunity to really drive service in markets that maybe you're a little bit smaller. So I think that, that success has been kind of across the board, efforts in markets that we continue to develop. It speaks to our opportunity.

I listen, that's really great color. I appreciate the time as always, I won't be well.

Your next question comes from the line of Jon Chappell with Evercore ISI. Please go ahead.

Thank you. Good morning. Fritz, I don't think it's lost on anybody that your March and April trends both year-over-year and sequentially are much better than industry. From what you can tell, is that mostly just market absorption from the terminals that you've opened over the last two years or are you gaining share on kind of an apples-to-apples store basis relative to the industry over the last couple of months?

Well, I think any time you're going to get share gain, it's profitable share gain; what that is really a reflection of is successful execution for the customer. I think you win on that basis. So I think what we've seen performance-wise is what I'm pleased with is our teams are doing a great job for the customer, and you can win on that basis. And I think that, that's why we have seen the performance we have across the network.

Okay. And for my follow-up, on those 21 terminals, I think Doug kind of insinuated that to get OR improvement still with those 21 terminals kind of fully ramping is a good result. Do you have any sense for where those 21 stand on a P&L basis, a margin basis return? However you want to measure it relative to the existing portfolio and probably how much runway is left then for those to get to where you want to see a productive terminal operating?

Yeah. I mean, we don't break it out by bucket, but I'd say those 21 terminals in total in Q1 operated in the mid-90s, right? So you've got a little over 10% of your terminal base operating in the mid-90s. So where can that go? It goes to the company average over time. An example of that I always call out our Northeast region. I mean, it took a couple of years to get to profitability once we opened up the Northeast. But three years later, we found that Northeast was operating in the mid-80s. I mean the company wasn't even there a few years ago. And so yeah, we're carrying 24 through the soft part of the cycle here, and they're a bit of a drag, but we're excited about the share opportunity. We know we've got good service, and where we have a presence, representative like our peers, we get more than our general average market share. If you look at Saia's industry share of revenue, maybe it's 5.5% or something. But in markets where we have a representative presence in terms of terminals and penetration in the market, we get more than that. We've got to build it out, and it takes some years to fill it up, but we've been pleased with the progress so far.

I would just add that overall, every region is going to get better because we think this business should operate into the 70s OR. It won't be this year because obviously, the environment. But I don't think there's anything that we've seen that says that we can't continue on the long-term strategy.

Yeah. Very helpful. Thank you, Fritz. Thanks, Doug.

Thanks, Jon.

Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Please go ahead.

Thank you, operator. Hi, everyone. Fritz, do you believe the team can maintain or even improve the operating ratio this year after a very strong 2022? We've discussed revenue per bill and Saia's discount revenue per bill compared to consistent peers from a service angle. We've generally looked at this from a pricing perspective, but it seems the mix is improving with your weight per shipment, which is currently at its highest level in the first quarter, although it remains about 100 pounds less than the best-in-class reporting. Could you elaborate on where this weight per shipment is originating from? It appears to be a crucial element of the overall situation, and there’s a lot of potential for growth. Can you share some initiatives you're implementing to increase the weight per shipment? Thank you.

Thank you, Amit. Doug and I will share this answer. Regarding the market-facing aspect, we have focused on identifying and targeting freight that we can handle efficiently. We have dedicated time to understanding our customers and determining the types of business we can manage effectively while delivering excellent service and charging appropriately. This approach has been central to our strategy over the past few years. Currently, even in a challenging environment, we are witnessing some positive results as we engage with customer segments that align with our strengths. I believe the opportunities for us are still significant, and this is an area we can develop over the next few years. It’s essential for us to stay concentrated on this, especially as we expand our facilities across the network. As Doug mentioned, we have added several new facilities that are still in the start-up phase and not yet operating at optimal levels, which is expected. These facilities require the same attention and effort we apply to our legacy operations to ensure efficiency, high-quality service, and appropriate compensation, as we know that customers appreciate this. However, these new facilities present maturity challenges that we will navigate over time, compounded by the current macroeconomic conditions. Regarding full-year profitability, Doug provided some insights into our outlook for Q2, but we do not have a clear picture for the second half of the year. Our focus remains on serving our customers and capturing available freight. Doug will share more thoughts on full-year profitability.

We are making an effort to provide as much assistance as possible in modeling this situation. However, given the uncertainty we face, our effectiveness may be limited. On a year-over-year basis, we experienced a 60 basis point increase in Q1. If we can see some improvement from Q1 to Q2, we would still be significantly up year-over-year in terms of operating ratios. If we perform well in Q2 as we hope, the first half would show considerable year-over-year growth. Therefore, it's unlikely to project flat or improved results in this environment. We will continue to invest, and as conditions become more challenging, we anticipate more opportunities for real estate engagements. When it makes sense, we are prepared to allocate capital accordingly.

Yeah. That’s fair. That’s totally fair. Okay. Thank you very much. Appreciate it.

Your next question comes from the line of Chris Wetherbee with Citi. Please go ahead.

Thank you, good morning everyone. I wanted to discuss our overall perspective on pricing and how we envision it evolving from this point. Your performance in terms of tonnage is impressive. We've noticed some competitors adopting a more dynamic approach to the market, but it hasn't significantly hindered your ability to renew contracts, which appears to be in good shape. Could you share your thoughts on how you see this situation developing? Are there any emerging concerns or signs that give you confidence that things will remain strong?

I believe the market is quite disciplined. When you consider the inflationary costs that everyone is facing, it's clear that there's a need to keep pushing prices. In this environment, cheaper freight doesn't make much sense to us, and it wouldn't be fair to others, either. What this suggests is that we need to concentrate on the aspects we can control. Service levels must be exceptionally high if we plan to approach customers for a price increase, which is our main focus. Those are the elements within our control. Looking at our pricing relative to others in the market, it seems we may have more opportunities to work on that, which is part of our long-term strategy.

Okay. That's helpful. I appreciate that. And I think in terms of the things you can control, I wanted to just ask about the PT line; obviously, a pretty good decline in that number. And obviously, miles are coming down quite a bit from rail or truckload. Can we just talk a little bit about how you think that plays out relative to your tonnage, obviously, tonnage on a year-over-year basis sort of getting less negative as we move forward. So just want to get a sense of maybe how we think about PT next couple of quarters?

We consider this part of our line haul cost. Our first priority is to meet customer expectations and service level requirements. If we can satisfy that, we then look for the most cost-effective way to achieve it. Recently, we've been able to rely more on our own drivers to facilitate this. As we mature in this business, we expect to increase our internal density and decrease our reliance on outsourced transportation. Currently, in the truckload PT environment, rates have decreased. We maintain long-term relationships with our PT providers, which has allowed us to incorporate these rate declines. Our focus is primarily on service; where possible, we aim to use more rail as it is the most cost-effective option, but it must meet service levels first.

Okay. That’s helpful. Appreciate the time. Thank you.

Thanks, Chris.

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

Hey. Thanks. Good morning, guys. I know that you typically tend to just focus on tonnage. It just feels like we've got some more moving parts than normal with yield and fuel. Maybe just to the extent it can help us. Any sort of directional color or commentary on revenue trends right now relative to the tonnage down one?

On a year-over-year basis, April is seeing a revenue decline of about 1% or 2%. I mentioned in the script that the changes in our mix, which are influencing the weightier freight, are critical for revenue per bill. The yield trends will vary for everyone based on factors like mix, length of haul, and weight per shipment. We've emphasized our focus on increasing this revenue per bill number. Reported yield is one aspect, but the mix change in revenue per bill is essential for us. Our goal is to see an increase from Q1 to Q2, and we will continue to work on bringing the right freight into the network. When we implement our General Rate Increase, it won’t be a uniform increase across all classes and weight breaks. We have been making efforts to adjust where necessary to attract the appropriate freight into our network. The heavier-weighted LTL freight, specifically 1,000 pounds and up, has proven to be very beneficial for us.

Okay. Helpful. And then just any color on head count and how that's trending relative to the tonnage down slightly and then plan for headcount going forward?

We have been managing hours carefully over the last few months as our needs have changed. Our headcount is one factor to consider, and another is the number of hours being worked each day. Compared to the same time last year, we have increased our workforce by about 200 employees from Q1 to Q1. Additionally, we opened 15 new terminals in the past year. While we've experienced some employee turnover, we've managed it without replacing every employee who left. Looking ahead, we have another terminal opening in May, which, while not large, will require some new staff to prepare. We may have a few more openings later this year, but overall, we'll be monitoring our volumes closely. Seasonally, our line haul drivers have increased year-over-year, which is encouraging. We've been successful in attracting high-quality professional line haul drivers as we've brought more of our miles in-house. Overall, considering we've opened 15 new terminals year-over-year and only added 200 employees, I believe we are maintaining good control.

Okay. Good start. Thank you, guys.

Thanks, Scott.

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

Good morning. I wanted to ask you more about the cost side. You mentioned headcount briefly. How are you doing in terms of line haul utilization? Also, can you discuss dock efficiency and local pickup and delivery efficiency? Do you have further room to manage these aspects to support the operating ratio in line with freight levels, or have you already made those adjustments throughout the quarter?

Thank you for the question, Tom. The main takeaway regarding the productivity improvements we observed in Q1 is the need to sustain and possibly enhance those gains in the second quarter, especially given the uncertainty in the market. It's crucial to focus on what we can control. We'll keep managing our linehaul miles. As previously mentioned, the percentage of linehaul, specifically the PT component, has decreased to 10.5% of total miles, down from approximately 19% in the first quarter of last year. While there may be opportunities to optimize this, we might also increase investments if we determine that it's cost-effective for our overall linehaul strategy. It's important for us to maintain productivity in our dock operations as well. We're looking for ways to improve load averages and capitalize on our middle market activities, especially in areas that have previously been underdeveloped outbound markets. If we effectively promote outbound sales in these traditionally inbound markets, we can enhance the utilization of our linehaul infrastructure and investments. These efforts are key to driving the efficiencies we've experienced.

Okay. So it sounds like you believe those efficiencies can continue to improve?

Yeah.

Okay. Given the discussion on pricing, how do you view the revenue per hundredweight excluding fuel as we look ahead? Do you think it will continue to slow down, or will it stabilize in the mid-single digits year-over-year? Is it likely to remain at that level or drop to low-single digits? Thank you.

Good morning, Tom. It's difficult to predict from this position. However, if we keep improving our mix, I believe we can achieve revenue per bill growth in the low to mid-single-digit range. This would come from a slight increase in price and mix. If weight increases, which could be a challenge and affects my reported yield negatively, I'm fine with that. We've had success incorporating heavier freight without significantly raising our handling units. If the weight goes up, we only slightly increase the handling units. Overall, we are able to generate more revenue without altering our cost structure much as the weight increases. While I understand that the market often emphasizes yield, we are more focused on whether the revenue per bill is justifying and covering the shipment handling costs.

Great. Okay. Yeah. That makes sense. Thanks for the time.

Thanks, Tom.

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

Hi. Good morning. Just want to talk about the demand environment. Again, I know the trends seem a little bit better. One of our industrial companies yesterday did talked about seeing some early cracks in terms of the demand environment that they're seeing. Just any color that you have in terms of conversations that are freezing some red flags. Any geographies that you may be noticed a little bit more dislocation there? Just any thoughts, I know you're pretty diversified.

Allison, I mentioned earlier that the Southern California, specifically the Port L.A. area, is experiencing a decline year-over-year, which is somewhat unusual compared to the rest of our operations. I attribute this mainly to lower import levels, as port volumes have decreased overall. There isn’t a specific vertical or industry to highlight; rather, the trend is consistent across our business in that region. However, I’m encouraged by the positive feedback from customers regarding the services we provide, which I believe helps us stand out and secure opportunities. When we deliver value—ensuring that freight is on time and undamaged—it makes a difference, especially in a cost-focused environment. While customers are pressing on rates, we are not conceding to that pressure.

Got it. And then the incremental terminals that you plan to open, I think you said they were in existing markets. Is this just a market where you're starting to see outsized demand, or is it sort of more of a longer-term opportunity or sort of a mix of both? Just any color there?

Every terminal we plan to open, regardless of the environment, is based on our long-term outlook. The terminals we anticipate opening this year are in markets where we already operate, which allows us to engage more closely and efficiently with our customers. This is crucial because meeting customer expectations promptly is vital, especially when they need freight picked up. For instance, the Atlanta Northeast terminal we opened on Monday has already shown improvements in the Atlanta region in just four or five days. This facility has become one of our top locations in a short time, enabling us to better serve customers we previously struggled to assist. We recognize the importance of these openings, and it all starts with the customer.

Great. Thanks for the color.

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

Doug, you talked about adding a few hundred people year-over-year, but if I square that with the year-end headcount, it looks like it might be down a bit. Can you talk a little bit about if you've been able to ease on the head count sequentially, how you're able to do that while reducing PT so considerably and keeping service high? And roughly, if things were to play out relatively seasonally from here, do you think head count is up or down at year end? Thank you.

I'll touch on that. The main point is that we've effectively optimized our linehaul network over time, which has allowed us to make better use of our current driver workforce. This optimization has enabled us to handle more of what was previously outsourced as PT. Looking back to Q2 of last year, we've been working on this for some time, and it's been successful. On the city side, we've also implemented a similar strategy by reallocating underutilized drivers to our linehaul network, allowing us to take on even more freight. Throughout this process, we've been careful in managing our resources. As we look ahead for the rest of the year, we may need to add more drivers if we open new facilities. For instance, we have added drivers in the Atlanta Northeast for that opportunity. We are being very cautious about these decisions. Most importantly, we want to ensure we maintain our driver workforce, as it's crucial for flexibility when market conditions improve.

Thank you.

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

Hey. Great. Good morning, Doug and Fritz. Maybe could we just delve into the weight. Doug, you seem to mention how important that is on the revenue per bill and we should look at that a bit more. After being kind of flattish in January and February, up 0.2 and down 0.1, weight seemed to jump almost 5% in March. Was that a comp issue? Is there a shift going on with the elimination of third-party freight, maybe just delve into what's going on with weights and how you're driving that and what happens so quickly in March.

Just seasonally, some of our core shippers become more active in March. Earlier in the year, there may be more promotional business, where we do lighter weighted promotional shipping for retail customers, for example. Generally, the trend has been pretty good for a few quarters, driven largely by our targeted GRI adjustments and our analysis of a customer's book of business when their contract is up for renewal. We spend significant time reviewing the data to ensure we offer the right pricing to attract the freight we want. In March, we've seen some month-to-month volatility, but overall, the trend over the past few quarters has been influenced by our efforts.

Could you clarify your thoughts on the continued flow through in this market as you move forward, particularly regarding the 7% increase in contract rates?

I think it's a general indication of our perspective on the current environment. However, as you are aware from closely monitoring this situation, the actual outcomes depend on how much the customer ships and the specific freight lanes we secure. These contracts are not pricing agreements tied to a volume commitment. Therefore, we see it as an indication that the market is open to pricing adjustments, and we will keep pursuing that approach. This framing helps us understand where we should position ourselves in the market.

Yeah. I mean just looking out into Q2, I mean, our weight comparisons year-over-year, those comps get easier. So I mean the March weight per shipment is the exit rate leaving March is high, and I've got some easier comps coming. So weight per shipment could theoretically be up more in the coming months. And that's a headwind to the yield, but we like it if we're getting paid for it.

But that blends to your April was, what, down just 1% year-over-year.

Tonnage is down just under 1%.

But you gave a revenue...

Total revenue is running down a little bit, 1% or 2%.

Thank you. Good morning, everyone. So maybe it helps to kind of end this call with a bit of a conceptual question here. I think I know the answer to this, but maybe not given how weird the cycle has been. What is a better indicator of where we are in the cycle right now, shipments or tonnage? Because it seems to be going in slightly opposite directions and kind of both your strategy and your customers' kind of approach should be able to be deferring a little bit.

I don't know what defines the best call, but I know what works best for us at Saia: it's about driving profitable freight. It's a combination of business that allows us to provide excellent service and charge appropriately to generate a return. That's my perspective. There might be a situation where tonnage is somewhat weaker. However, as Doug mentioned earlier, if the yield changes, then it's crucial that we are compensated for the freight. This might mean an increase in yield. Ultimately, we are focused on maintaining a profitable mix of business, so we must identify the freight that aligns best with our goals.

Got it. And so I think the gist of the question was, is the cycle getting worse, but you guys are just like massively outperforming? Is the cycle getting better, and you guys are able to catch that tailwind better. I think the market started to get a little bit of color on both the macro environment as well as your own performance within that.

The macro environment is quite challenging, as reflected in the available data. Our team is effectively providing value to customers, and we are differentiating ourselves in that regard. This is crucial for our success, as it involves aspects within our control. While we cannot influence the macro environment, we are aware of the ongoing challenges. The recent GDP figures were lower than expected, and our results reflect our focus on controllable factors and execution. Are we capitalizing on the current environment? Perhaps, but our main priority is delivering excellent service to our customers.

I mean we've also said that, I mean, as we go through the cycle, maybe it's an opportunity for us. We feel like we've improved our service game over the last few years. The customers tell us that's the case. We're closer to some customers these days. But we've also said we're a little bit cheaper than we probably should be. And that stands out as a good value for somebody. So for somebody looking at their supply chain costs, an environment like this, they say, maybe we give Saia a shot with some of this. So I don't know that the macro is strong enough that we're going to be up, but maybe we're down a little bit less than some of the peers. And if we do a good job, we keep that business coming out of this, and that's on us to go execute, like Fritz said, but I think that's probably making our numbers look a little bit different. I mean, we've said for years that when we come across some surveys as a value to customers, that's a little frustrating because it means we're too cheap. And so maybe we're getting a shot at some customers that are willing to step down and give us a try. So maybe that's why our trends look a little different so far this year.

That's really helpful. Thanks for the information. And maybe just one quick follow-up on the cost as well. The drawdown in purchased transportation, I mean, you said that in some cases, that actually improved your customers' outcomes. So do we think of this as a kind of a tactical thing given the cycle, or do you think that this can be a structural drawdown just given that it may be the better thing for the customer?

Let me clarify if there's any confusion about this. We will use purchased transportation if it meets customer expectations. If it doesn’t, we will use it internally. We do not view reducing purchased transportation as a means to enhance customer experience; rather, it is essential for the customer to be indifferent to our use of it. Structurally, as we increase density across the network, there may be opportunities to use less purchased transportation. However, there are periods and markets where using it makes the most sense. It's important to understand our approach to this issue. Line haul plays a vital role in delivering exceptional value to our customers, and we must make cost decisions that align with efficiently meeting their expectations.

Very helpful. Thank you.

Your next question comes from the line of Christopher Kuhn with The Benchmark Company. Please go ahead.

Yeah. Hey. Good morning, guys. Thanks for letting me in at the end here. Just curious on the length of haul. If we see West Coast imports picking up a little bit, would that potentially help the length of haul down the road?

Yeah. Provided it's freight that makes sense and an opportunity for us, sure. That probably influenced like the haul statistics that we have; we reported that reflects having down year-over-year on the West Coast volume. So that certainly could be a positive for us.

Okay. As a follow-up, have the rates decreased now that the volume has softened and capacity has increased?

Not from our perspective.

Okay.

We're providing a service there. And the services require us to make an investment. And when that happens, we need to get paid for that. That's a valuable asset or employee equipment and additional cost to provide service to the customer; we got to make sure we get paid for that.

Great. Thanks very much, guys.

Your final question comes from the line of Ari Rosa with Credit Suisse. Please go ahead.

Great. Good morning and congrats on managing through a difficult environment. I just had one clarifying question. I want to make sure I heard correctly. So you said aspirationally, you would look to have OR improve 100 basis points from first quarter to second quarter. Just wanted to make sure I heard that right because if I look at kind of the last two years, it looks like it was closer to a 400 basis point improvement. Obviously, I understand very different environment, but would want to understand, I guess, where would that be expressed or is that kind of mostly on the salaries and benefits line item taking kind of a sequential step up or what is kind of that mix? And then in your response, if you could address kind of how you think about your split between variable and fixed costs that would be really helpful. Thanks.

The improvement in operating ratio is typically linked to a significant increase in volume, and we're currently operating at lower levels while adding several new terminals. This places us in a different phase of the cycle compared to the past few years. If we experience a small sequential revenue increase from Q1 to Q2 and achieve a 100 basis point improvement in operating ratio, we would consider that commendable given the current phase of the cycle. As for the breakdown of fixed versus variable costs, generally around 35% of our business is fixed, similar to many others. The variable portion isn't completely flexible since the network must remain operational, even with fewer shipments nightly. Consequently, costs do not adjust quickly and directly based on each shipment.

Got it. Okay. Understood. Thanks.

Thank you, everyone, for calling in. I appreciate your participation and learning about the continued Saia growth story. Look forward to catching up with you next quarter. Thank you.

That will conclude today's meeting. Thank you all for joining. You may now disconnect.