Hello, my name is Chris, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Q2 2023 Saia Inc. 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. Thank you. Doug Col, Executive Vice President and Chief Financial Officer. You may begin.

Thanks, Chris. Good morning, everyone. Welcome to Saia's second quarter 2023 conference call. With me for today’s call are 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 second quarter results. While continuing to manage through an ongoing softer economic environment, I'm proud to present what I view as very solid results produced by our team in the second quarter of 2023. On a bright note against easing year-over-year comparisons, the pace of volume declines moderated each month as we moved through the quarter and have actually turned positive so far in July. We believe changing industry dynamics over the last several weeks have played a role in this. Internally, we monitor our customer satisfaction metrics on a daily basis. For the quarter, our trends continue to progress favorably, as customers are increasingly satisfied with our service both in our legacy facilities, as well as the new facilities opened in the last couple of years. It is gratifying to see our team's commitment reflected in the financial results. Despite an overall fraught environment down compared to the prior year, we saw solid results in the quarter. Total revenue of $694.6 million was down only 6.8% compared to last year's record second quarter revenue, despite a 3.8% fewer shipments and the fuel surcharge revenue being down nearly 32%. Our focus on service, pricing and mix of business has been key to offsetting these factors and our yield, excluding fuel surcharge revenue improved by 2.7% compared to last year even with the headwind created by an increase in weight per shipment and a decline in length of haul. We continue to highlight the importance of business mix and freight selectivity and closely monitor our revenue per shipment. A key metric for our team. In the quarter, revenue per shipment excluding fuel surcharge increased by 4.8% benefiting from a 2.2% increase in average weight per shipment. Industry pricing continues to be resilient in the face of negative tonnage trends, and we saw an average contractual renewal increase of 5.3% in the second quarter. Our second quarter operating ratio of 82.7% deteriorated 230 basis points compared to our operating ratio of 80.4% posted in the second quarter last year. But again, that was a record quarter for both revenue and OR, and the industrial economy has changed meaningfully since then. I'll now turn the call over to Doug for more details from our second quarter results.

Thanks, Fritz. Second quarter revenue decreased by $50.9 million to $694.6 million. Yield excluding fuel surcharge improved by 2.7%, while yield decreased by 4.8%, including the fuel surcharge. Fuel surcharge revenue decreased by 31.7% and was 15.9% of total revenue compared to 21.7% a year ago. Revenue per shipment excluding fuel surcharge increased 4.8% to $287.9 compared to $274.6 in the second quarter of 2022. Tonnage decreased 1.7% attributable to a 3.8% shipment decline, slightly offset by a 2.2% increase in our average weight per shipment. Our length of haul decreased 2% to 892 miles. Shifting to the expense side for a few key items in the quarter. Salaries, wages and benefits increased 5.7% 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 1.1% year-over-year to support our network expansion over the last 12 months. Purchase transportation expense decreased by 45.8% compared to the second quarter last year, and was 7.2% of total revenue compared to 12.3% in the second quarter of 2022. Truck and rail purchase transportation miles combined were 11.8% of our total linehaul miles in the quarter, compared to 19.3% in the second quarter of 2022. Fuel expense decreased by 25.8% in the quarter, despite company miles increasing 6.6% year-over-year. The decrease in fuel expense was primarily the result of national average diesel prices decreasing by over 28% on a year-over-year basis. Claims and insurance expense increased by 19.3% year-over-year in the quarter; it was up 20.6% or $2.9 million sequentially from the first quarter of 2023. The increase reflects a combination of premium cost inflation and some expense related to development on older claims. Depreciation expense of $44.7 million in the quarter was 20.9% higher year-over-year, primarily due to the acquisition of terminals, tractors and trailers. Our total operating expenses decreased by 4.2% in the quarter and with the year-over-year revenue decrease of 6.8%. Our operating ratio deteriorated to an 82.7% compared to 80.4% a year ago. Our tax rate for the second quarter was 24.7%, compared to 24.4% in the second quarter last year, and our diluted earnings per share were $3.42 compared to $4.10 in the second quarter a year ago. I'll now turn the call back over to Fritz for some closing comments.

Thanks, Doug. So below last year’s first half results, overall, I'm very pleased with our first half financial results. To operate with an OR in the low to mid-80s. At this point, the freight cycle is a testament to the improved operating performance of our team over the last few years. Our customer-first focus is yielding tangible results across our organization; a singular focus on the customer is a rallying point for our employees, as reflected in the record employee engagement survey we completed recently. With a talent and engaged workforce, the value proposition to our customers continues to grow. A key component of our market share opportunity is being closer to the customer and giving them the chance to choose Saia for their LTL needs more often. I'm excited about the five new terminals we've managed so far. This year, we're on track to open three to four more by the end of the year. At the same time, we continue to develop the markets around the other 20 plus terminals we've opened over the last two years. Although we're excited about the early success of these locations, we see considerable runway to continue to penetrate those markets. While our pipeline for terminal openings carries us well into 2025 and beyond, keep in mind that a key benefit of our organic expansion strategies allows us to go at the pace that suits us. Our business cycle is subject to cyclicality, and depending on where we are in the cycle, we may see an opportunity to accelerate or even slow down our terminal expansion activity. Importantly, we have positioned the company to execute on our organic expansions quickly as opportunities become available. Finally, before opening the call for questions, I would say there's still a lot of uncertainty around the strength in the economy we faced in the second half and beyond. That uncertainty is heightened for the LTL industry through the current well-documented disruption. At Saia, we've emphasized the importance of the customer and focusing on things that we can control. So as our industry adjusts to the current disruption and adapts to the evolving economic environment over the coming months, my conviction about the long-term prospects at Saia remains steadfast. Great employees, great service and a growing footprint are all key to securing our position as a long-term share gainer in this industry. With that said, we're now ready to open the line for questions, operator.

The first question is from Jack Atkins with Stephens. Your line is open.

Good morning, and thank you for my opportunity to ask questions. I would like to start with a request for an update on the tonnage and shipment trends for July. Doug or Fritz, would you be able to provide some insights? I assume the trends from the first half of the month may differ from what you've observed over the past week to ten days. If you could provide some quantifiable information on that, it would be very helpful.

Sure, Jack. First of all, congrats on your summer activities.

Thanks. Thanks. So glad to be married.

Happy for you. So June, you guys have April May numbers, we put that out in the early June press release. So, the June numbers, our shipments were down 1.8% year-over-year, while tonnage was down 2.2%. So weight per shipment dipped in June by 0.4%. So mid-June, I'd say we started seeing some lighter weighted shipments, some of that, some of the activities we were working on over the course of the year and probably some of that already seen some freight flow into the network from newer customers as well. So that weight per shipment's kind of trend started in June, and its continued here in July in terms of lighter weight. So for July, month today through yesterday, shipments are up about 5% and tonnage is up about 2.5%. Again, that average weight per shipment trended down, but it makes sense to us versus what's going on out there.

Got it. And then in terms of just what you've been seeing, in the last couple of weeks, maybe last week, how does that differ from the month today trends, and I guess, kind of bigger picture for my follow-up question, Fritz, as you're sort of thinking about maintaining high levels of service, it's critically important to the Saia story and your value proposition. With this disruption in the marketplace broadly, can you walk us through how you and the team are really trying to make sure that you're protecting the network from any disruption from all this?

Yes, those are good questions. The first week of July, particularly around July 3, was a bit lighter in terms of shipments due to the holiday. This created some cost challenges. Typically, we experience this every year around this time. However, we've recently observed a more favorable trend in our business over the past two weeks, which has positively influenced our results in July. It’s essential for us to stay focused on our customers and maintain our service levels. We need to ensure we manage our freight and understand our customers' requirements thoroughly so that we can effectively meet them while ensuring the economic viability of our operations. We are confident in our strong service offering, which is crucial for us to uphold. It is also important that we receive fair compensation for providing such a high level of service. This situation presents a unique opportunity for us to differentiate ourselves, especially during this disruptive period. If we execute well, we believe that we can retain our share or even gain more over time, which aligns with our long-term strategy. The recent disruptions might have even helped us accelerate this process, but we'll monitor how it unfolds in the upcoming weeks. Our commitment to putting customers first will guide us through these challenges.

Okay. Thanks, guys. I'll pass it on.

The next question is from Amit Mehrotra with Deutsche Bank. Your line is open.

Thanks. Hi, Fritz. Hi, Doug. I have a quick question about the operating ratio as we transition from the second to the third quarter. I understand there may be a wage increase in the third quarter, but you seem to have some positive momentum on volume. Doug, could you share your expectations for the third quarter? And Fritz, what’s going on at Yellow? Regarding the overall pricing for your business, as you look at contract rate renewals, you mentioned a 5% increase last quarter. Does this present an opportunity to further narrow the revenue per bill compared to your competitors, which has been a focus, and what pricing opportunities are there with the existing business?

Sure, I'll take that first Amit. So yes, you're right, you know, July is kind of annually our time we think about, wage increases and things like that. So that's taken place, the average we'll call it right around 4.5% across the workforce. And historically, I mean, if I'm just saying about the last five years, you got to take out the 2020 COVID tear Q2 to Q3 doesn't make sense. 2021 was a pretty unique year in the back half, as we’ve really saw an opportunity to work on some things and improve things around assets and all, we took a really big step up there, and there's still opportunity there, we’re still grinding that out each quarter. But that was a kind of a unique quarter. But if I look at the other quarters, it's usually meant something like a mid-100 bps kind of deterioration. So I think, look, we got one month, and like Fritz said, a lot of uncertainty on the top line, certainly over the next few weeks. But with a month under our belt, 100 to 150 basis points in our view, Q2 to Q3 would be pretty solid work. So, like I said, we're less than a month in our belt, that's what we're comfortable with.

Yes, I want to address your question about the pricing environment. In the current situation, if a low-price competitor exits the market, customers will tend to shift towards providers like Saia, as we believe we are delivering an excellent service. This situation also reinforces our responsibility to ensure that we are compensated for that high level of service, capturing the necessary charges because customers receive significant value from it. We need to be very diligent in this regard. Over time, the discipline we've seen across the industry is likely to continue. The ongoing inflationary pressures on our costs are key considerations for all operators, including Saia, in terms of being able to fund those investments. We aim to continue closing the gap to ensure that we receive market rates or above, given the quality of our service. This presents an ongoing opportunity that we must pursue. With the current disruptions in the environment, it might allow us to showcase our great services, giving customers a chance to experience the value we provide.

Yes. As a follow-up, considering the overall perspective, Fritz, the fundamental performance has been excellent over the last five years, and the company's equity value has reflected that. For those who are new to Saia, the stock, or the company, how would you describe the opportunity over the next three to five years regarding revenue and margins? You've achieved a lot, but could you elaborate on the potential for growth and help clarify your views on the opportunities ahead?

I think that opportunity for Saia is significant. And I think if somebody studies the industry and you study what the sort of margin opportunities are with best-in-class looks like, and you look at our progress over the last couple of years, and you look at our performance through a bit of a slower part of the freight cycle right now, we're able to operate in the sort of low 80s, or that's a significant executional accomplishment for Saia now, and I think in a market where maybe we see a little bit more economic growth. I think the opportunity for Saia to grow this business well into the 70s OR is meaningful. I mean, it's something within our reach. What’s critical that and this is I mean, we talk about this all the time, it's about taking care of the customer, customers got to get what they need from Saia. And when those customers get that they understand what that value is, that helps our pricing story that helps us close our pricing gap versus the larger players in the industry. And I don't see any impediment to us getting into the mid-70s OR or better, I mean we're excited about that opportunity.

Hey, Amit. And I bring to note. Just close the loop, I know you know this and I know what you're asking. But just for everybody on the call to be clear, Q2 to Q3 are usually deteriorates a little bit because of that primarily because of that wage increase we discussed. So when I said 100 to 150 basis points Q2 to Q3, that's a degradation in OR. So, thanks Amit. We got to get on to the next one.

Yes, thank you. Bye-bye.

The next question is from Chris Wetherbee with Citi. Your line is open.

Thanks. Good morning, guys. Maybe just want to pick up on the shipment comment that you're making about the month of July, just maybe if you could get a little bit more granular. It seems like with a run rate that the acceleration you saw somewhere in the 1,000 to 2,000 shipments per day type of level, just wanted to get a sense of maybe what the exit rate was here in the month of July, so you can get a sense of what that sort of market inflection might be looking like?

Like Fritz said, I mean, really the last couple of weeks looks a lot different than the first couple of weeks of July. But, normally seasonally, we see a little bit of a step down from June to July. And obviously, that hasn't been the case this month. But, it's hard to parse everything out the last week of the month should be better, and it was and then you've got some freight going on out there it's coming into us news. So, it's been a meaningful step up. But we'll probably have to wait to get the full month trends in early September before we can really care to say anymore on it.

Okay, that's helpful. And then when you think about facility openings, and obviously the potential for some assets maybe to be available, I guess, if you look out into the back half of the year, can you give us a sense of what your plans are? Do you have 3Q plans that are specific that you can run through? And maybe what the opportunity could be from a footprint expansion standpoint?

Yes, it's early to make the call on what the real big opportunity could be. These three to four, I will give you a little bit of color, the three to four that we’re opening the balance of the year. Two of those were ones that became available to us in the last few months. So this is a pretty fluid environment that we're in where the assets become available. We feel really good about our ability to identify and purchase facilities, close them, and get them into our system. So it, if more opportunities were to become available, and I think we can move on those pretty quickly, I think we can integrate those opportunities into our network pretty quickly. I would suspect, if there were an influx of real estate that became available in the second half of the year, likely wouldn't get into the system, if you will, this year; probably turned into next year assets. The other thing I would point out is that, as we look at our pipeline of opportunities going forward, we have a number of pins on the map, if you will, that we have identified that maybe it's an opportunity, but if new assets become available, we may switch to something else that gets us into the market sooner or we may have to pause and say, well, we want access to a piece of property or a location that is kind of going through transition, it may take us longer to get there just simply because of administrative challenges or seller challenges, whatever that might be. But I think that what's important to take away out of this is that we have the ability to operate pretty quickly around identifying facilities, opening them, getting in line to Saia culture and service. And pretty well. That's a core competency for us.

Okay, that's helpful. Thank you, appreciate it.

The next question is from Thomas Wadewitz with UBS. Your line is open.

Good morning. I wanted to ask if you could provide more insight into how you see the transition in disruption occurring. Do you think this is related to the flow through brokers, where freight needs to be covered quickly, but the flow may shift again? Or do you believe it's crucial to secure these shipments, leading to a stronger relationship over time where you can gradually increase service and pricing? Additionally, if we consider this to be less service-sensitive freight, do you have the flexibility to set prices as you wish? I assume that yellow freight would be less service-sensitive, so I'm trying to understand your perspective on the freight process and its quality.

Yes, as we consider revenue for the rest of the quarter, there may be some fluctuations due to the displacement of freight or disruptions. We have accounts that have approved several LTL providers, so if one provider exits, the freight will be redistributed to others. This presents an opportunity for us to enhance service and potentially gain new business that we can retain. Additionally, a significant portion of this business has gone through third-party logistics and brokerage opportunities; if those align with our strategy, they may stay with us. It's crucial for us during this time to identify the freight that is the best fit for Saia. We're not pursuing volume at all costs; we're focused on achieving profitability and driving returns. As we acquire freight that we find advantageous, we intend to keep it over time. If adjustments to rates are necessary to account for historical charges, we will make those changes. If everything aligns, we believe that will ultimately benefit us in the long run.

Right. Okay. And then I appreciate that. And I guess for the second question would be, it seems like you're from a balance sheet perspective, you have very little debt, you got a lot of cash. That's despite having a pretty strong CapEx program this year. I'm wondering if you said, well, okay, that ‘24, there are just a bunch of attractive terminals, and we really got to hit the gas on this, would you consider kind of ramping up further and issuing debt to kind of go beyond what your strong cash generation allows? Or how aggressive could you be in terms of being opportunistic on terminals maybe in ‘24, not necessarily ‘23?

Tom, it's a great point you bring up. I mean, listen, this balance sheet is positioned to grow, right. So we've generated a fair amount of cash; we have cash position right now. The idea with that is they provide us sufficient powder, if you will, to accelerate our growth if we see that opportunity. So if the opportunity was attractive enough that it perhaps warranted leverage, we'd certainly consider that. But at the same time, we're generating cash, we found that we've been able to fund and find facilities and build facilities, frankly, out of our cash generation, what we have right now is really an eye to not only the real estate that we'd have to purchase, but also the equipment that we'd have to supplement our fleet to be able to match that with growth.

Okay. Yes, great. Seems like you're really well positioned. Thanks for the time.

The next question is from James Mulligan with Wells Fargo, your line is open.

Hey, guys, good morning. Just actually wanted to sort of talk about some of the volume trends you'd call out. Any idea sort of how much of that might have been cyclical versus sort of what just sort of like essentially more of the market driven part of it with yellow. And then also, as we go sort of like think through this sort of reallocation of share from little bit, it's been a source of share over the past decade and a half as we think past it, do you sort of think that the LTL environment or will have to slow its growth a little bit, given that there will be that source of share? Or there's still sort of opportunities in modal share or other weaker competitors, where sort of volume growth can continue to grow at an impressive rate?

Yes, it's, Doug. The current environment in terms of the competitive landscape, and certainly fuels this pickup we've seen, there's no question. I mean, we've got some internal Saia focus opportunities this year that we think we're starting to materialize in terms of new customers and some different verticals, and we think we're starting to get a foothold. Remember, we've opened 22 terminals in the last three years, and some of those in middle markets where we've had selling initiatives that we're gaining traction on. So, we'd like to think some of our initiatives are starting to fuel the volume we're seeing and kind of offset some of that cyclicality you mentioned. But in terms of green shoots, and the economic backdrop, we were seeing over the last couple of months, we haven't been calling out any bright spots on the underlying industrial economy. Now, going forward, in terms of how LTL is positioned? We think LTL stands to benefit really over some of the supply chain trends over the next decade and beyond, as you think about nearshoring and what that might mean and more cross-border moves with Mexico and even Canada and the role LTL play in smaller, more frequent shipments. We think that bodes well. We think LTL is well positioned to continue to benefit from the growth of residential deliveries and final mile activities. As consumers have gotten more and more comfortable ordering things online instead of visiting bricks and mortar retail, for example. Some of those things are heavier weighted and beyond what a parcel carrier can do. So LTL ends up playing a role in that. So, I think we're well positioned specularly to participate. But in terms of the immediate kind of economic backdrop, we weren't calling out any green shoots.

To build on Doug's comments, if you examine our relative performance compared to our peers over the last few quarters or year, you'll notice that our services have stood out, and our performance has likely exceeded that of some competitors in terms of shipments and tonnage. I believe that this momentum will play a significant role in our future success, making it an important distinction to highlight.

Got it. Thank you.

The next question is from Jordan Alliger, with Goldman Sachs, your line is open.

I guess a couple of questions. One, I was wondering if you could maybe give some sense for how your yield ex-fuel looked as we move through the quarter and how it feels in July, maybe even especially with that step up in volume? That would be the first question.

Yes, in terms of yield, I mean, as the weight per shipment came down, there was a kind of a positive tailwind call it like later in June, we started seeing that. And on here and into July now, that's the way procurement coming down, it's a negative right to revenue per shipment. So we have to keep an eye on that and make sure that we're getting properly concentrated. But so much of that yield is mix-related. And that could be weight and length of haul, but it can also be geography and direction of rates moving and also a lot of things flow into yield. But like Fritz said, I mean, what we think about is the pricing environment, and that's remain good. And is the yield up as much as the GRI are as our contractual renewals are running? No, but pricing is positive. And that's what we're bringing to the bottom line. So yes, I'd say you got to watch that weight per shipment, for example. If that continues to trend negative in the quarter, like we've seen in July, that helps you reported yield.

And then, sort of the second question is, you mentioned sort of the normal degradation on OR to 2Q to 3Q, but just curious what can make it work, I would think there's a chance for it to do potentially decent amount better as there's this certain volume step up. And I imagine at least some floor on price, given potentially uplifting prices, maybe a competitor kind of goes away. So curious, your thoughts on the variability around that normal OR trajectory? Thanks.

That's a valid observation. We're still in the early stages of things, but there is definitely a way to surpass expectations. If we maintain our core operations and manage our mix effectively while keeping costs under control, I believe there's a chance we can achieve better results. Our shipment and tonnage trends should be viewed with the right perspective, and I feel optimistic about our potential. However, during this disruptive period, we need to be cautious about the mix of our business and the profitability of any freight we take on or new customers we acquire. It's crucial for our value proposition that we align these customers with an understanding of service levels and their associated pricing implications. So, yes, I see the chance for us to exceed expectations, but we must focus on executing our strategy.

The next question is from Ken Hoexter with Bank of America. Your line is open.

Hey, great. Good morning, Fritz and Doug. And congrats on great results and working through this process here. Do you still feel like you have 20% excess capacity? Is that kind of after adding the five service centers and looking at more, maybe just talk about the capacity ability to grow here?

Real quick and apologies on that pronunciation. We all know its Hexter, but you weren't in the queue early, so I didn't get a chance to get Fritz some backlog in.

Okay, I've heard all different sides.

I take full responsibility for that. Currently, we have about 15% capacity across our entire network. It's important to note that due to our current network maturity, some facilities have lower capacity levels, while others, which we've opened in the last two years, are operating at 60% capacity. This presents an opportunity for us to optimize the use of the facilities we've invested in, allowing us to stand out in the market and attract new customers. Our larger areas are nearing full utilization, and we have plans to upgrade some facilities this year. Overall, we feel optimistic about our position in this disrupted environment. However, like in previous years, we face the challenge of uncertainty regarding freight sources. The network capacity number I provided is an average, and in certain areas, we may need to manage capacity differently while pursuing freights in others.

So, I guess I want to follow up on an earlier question, which is, really some business gets assigned right away, and maybe from your experience, and how long does it really take to settle in, right, because there's this chaos that needs to be assigned right away and then freight gets distributed. Maybe talk about how much business I don’t know, multi-year contracts versus how quick you can move that pricing in the base?

Yes, some of this involves existing customers, and most of our clients are on one-year pricing agreements. We need to ensure that we are confident in our pricing. As we increase the revenue from an account, it might be because we previously did not have the account or didn't capture a significant portion of the business due to less appealing pricing for the customer. Now that they have shifted their freight to us, we are satisfied with our pricing. This primarily pertains to our national account business; however, for new customers or those with whom we have only done limited business, or have opened new lanes, we need to monitor closely to understand their freight characteristics and what their needs look like. In those situations, we may have to manage things differently in the short term. As the industry goes through a period of adjustment due to this disruption and freight reallocates among competitors or to us, we can expect a fair amount of movement in the upcoming weeks.

Great. Thanks for the time guys. Appreciate.

The next question is from Jon Chappell with Evercore ISI, your line is open.

Thank you. And good morning. Fritz, to your answer for the previous question about capacity being different in different locations. And most of these new terminals that you brought on, there's been a lot of them haven't been running at the profitability of the entirety of the network. And there was a thought process that over time, they would ramp to that. Does this what's going on in the market today accelerate kind of the marking the market of the profitability across the new terminals? Or is it completely dependent on the geographic mix of the freight?

We’ll say it is dependent on both, but in fact the matter is, is that this the opportunity to grow the business more accelerated pace right now that helps us drive that, leveraging those investments, building the density around our line home network or pickup economies, all those sorts of things. So yes, the additional well-managed growth here is a potential will adder for us.

Okay, and then my second one, kind of mixing the short term with the long term, the work disruption has been thrown around a lot. I'd imagine you're going to flex PT as you get this acceleration of shipments, but as you think about more permanent resourcing, whether that be headcount equipment, et cetera. How are you thinking about, you know, what's been happening over the last couple of weeks and how you're investing above and beyond, just the terminal expansion that's been on the radar for some time.

Our ability to manage linehaul costs is a significant advantage for us. We are confident in adjusting our purchase transportation as needed to meet customer service requirements. Over the past few quarters, we have insourced many miles during the volume declines experienced in late Q3 into Q1. As we move into a growth phase, it's essential to scale our linehaul network effectively. This involves fully utilizing our current drivers and adding new drivers in various markets to support our growth rates. In the meantime, we will meet service requirements by working with our purchase transportation partners, ensuring it aligns with customer expectations and remains cost-effective. With these two factors in mind, we feel positive about our capacity to scale up. We will also continue to add more drivers to our fleet.

Got it? Thank you, Fritz.

The next question is from Eric Morgan with Barclays, your line is open.

Hey, good morning. Thanks for taking my question. I wanted to come back to your comment on closing the pricing gap to the peer group. Just curious, how big of a focus that is for you right now? And can some of this disruption going on be a catalyst to get there to parity faster than you might have thought otherwise? You know, not saying really near term or anything more as the dust settles? Is that an opportunity? Or is it going to be kind of a steady approach over time?

We consider the service we provide to our customers every day, and we focus on ensuring we are compensated for that service daily. Our organic expansion is ongoing, and we are adding terminals to enhance our service levels. By moving closer to the customer, we are addressing critical touchpoints, including pickup and delivery times, which are vital for customer satisfaction. This strategy increases our potential for revenue. As we grow, we are approaching parity with our larger national competitors. We monitor their average revenue per transaction and compare our service levels to theirs, understanding the competitive landscape. Closing this gap is crucial and represents a key part of our value proposition. In this environment, I expect us to intensify our efforts, and I anticipate our peers will do the same. Despite the recent slowdown, we have observed disciplined pricing across the competitive set, which is significant.

The next question is from Jason Seidl with TD Cowen, your line is open.

Hey, thank you, operator. Hey, Doug. Hey, Fritz. Doug, I wanted to make sure I understood what you said about the OR on a sequential basis; you're coming up with 100 to 150 basis points of degradation. That is the typical OR that you see, or that's what you guys are assuming if that's the assumption, does that include more freight from a yellow bankruptcy?

It's pretty standard. As I mentioned, if you look for an average, you need to exclude a few factors. I've tried to do that. The figures indicate it has ranged from 150 to 200 words, especially when you discount a COVID year and 2021. However, based on our observations in July, we lack clear visibility on where this may lead over the coming weeks, but we believe we can achieve that. Therefore, 100 to 150 basis points seems feasible. It may even be slightly better than the historical average, but as I mentioned, that average is derived from excluding certain elements. Nevertheless, we recognize that wage increases are in effect, and we are beginning to implement some driver hiring bonuses that we haven't utilized in several quarters. Taking into account what we currently know for July, we believe that reaching 100 to 150 basis points is achievable. However, the trajectory of revenue remains uncertain.

Okay, well, I appreciate the clarification. And follow up on pricing. We were hearing back in June that LTL carriers were sort of pushing off some of the negotiations with customers based on the fact that they thought there could be an issue with yellow. Was this the case? And has that borne any fruits on the pushback?

We weren't pushing anything back. I mean, listen, our view of this is that we've got to get the pricing in place. I don't know that we get there may be some anecdotes out there. But we haven't seen anything like that. I know that there were customers that maybe saw some of the disruption, and we're looking to secure their capacity. And certainly, we were part of that and making sure that was all to the extent that it made sense for us, we negotiated those opportunities.

Okay, make sense. Appreciate the time as always, gentlemen.

The next question is from Ravi Shanker, with Morgan Stanley, your line is open.

Thanks, everyone. Doug and Fritz, obviously, this is a potentially fairly large business opportunity for everybody. And maybe kind of jump ball right now, obviously, you got staying pretty disciplined on your pricing returns. But are you seeing any other players in the space who are like fairly aggressively going after this business? Or do you think everyone's sort of waiting for it to settle in?

Yes, I don't have a call out there for you. I would tell you that I think is we're probably still early innings on how things shake out. But I think the one thing is fundamental for all LTL providers, regardless of where you're positioned in the market, this is an inflationary business. And volume does not generate incremental return unless you get the appropriate pricing on it. I think we've seen how the industry has played out over the last few quarters, as volumes have declined, you see a lot of discipline around that. And I think it's because of the underlying sort of basis of business. So I don't anticipate any price-led sort of volume chase, if you will.

Got it. And maybe now switching gears and talking about the cycle, you guys I think hinted that you're not seeing too much out there in terms of just cyclical improvement. Can you just give us some goalposts, like what are you going to be looking for? What are your customers telling you in terms of inventory level, kind of when do you think kind of the pure kind of cycle driven core business grows as well?

Well, I think the underlying growth that we have in our business before kind of this sort of last few weeks has been our own competitive differentiation. So I think that's been positive. I think that as we look at the more sort of macro indicators are out there, as you know, I think the GDP numbers look that's probably favorable right now. And I think if we see that develop in the second half of the year, I think that's probably the green shoots that folks are looking for. I think that our customer set, we don't hear anything particularly new, one way or the other is more of sort of a temperate environment. I don't think it's a recessionary environment or anything like that. I think it's just a temporary environment versus the prior year, kind of where we were. So yes, I don't think we have anything new to report there. But, I think as the second half develops, I mean, if we keep the recent sort of economic trends, I think it's positive.

Understood, thank you.

The next question is from Bascome Majors with Susquehanna. Your line is open.

Your perspective on the yellow situation with investors in every meeting since the beginning of June. You've heard what we're asking on conference calls this quarter, both within the LTL and outside of it. I'm curious, from your perspective, what is the investment unit getting right on how this situation could and may impact your business? And are there places where we're kind of missing the forest for the trees on short-term, mid-term long-term impacts from the way you see it? Thank you.

At a high level in the industry, the exit of a potential top three player will likely lead to a redistribution of freight within the business, although it won't be evenly allocated. Freight will be directed based on the service requirements of customers, which means a player with a lower service level could capture a larger share of that business, potentially affecting customers with higher service expectations. Overall, there is an understanding that when a significant player is disrupted, the business will be redistributed across the market. The fundamental value proposition of the remaining players will determine where the freight ultimately goes. For Saia, we have a clear opportunity to maintain high service levels while optimizing our pricing and margin structure. This environment may allow us to grow at a faster rate than we have been.

You've been so adamant in mentioning service and revenue quality in all of your answers to this situation, I mean, is the message that you probably rather take less than more of your pro-rata share initially, and in hope some of that comes back when they're not satisfied with the service they're getting at brand X, is that really what we should take away here?

I think that if you follow Saia over time, I think the fundamentals of our business, we have never been one that are in business to chase market share, or volume; our focus has been on generating returns in this business. And so, we talk a lot about our internally around how we're managing profitability. So this is exactly the same sort of scenario. Maintain a high level of service, customers expect that and the customers expect that we'll be willing to pay for that service. And that's the winning proposition for us. So it's not necessarily who can get to be biggest, fastest; it's about generating those returns, and we see and it's pretty apparent when you look at the other sort of public peers that are out there, you see what that level of performance looks like, and that there's no reason for us not to try to pursue that. And that's where we take the big value is in our business.

The next question is from Stephanie Moore with Jefferies, your line is open.

Hi, good morning. Thank you. I wanted to touch on actually the OR performance for the second quarter. I was hoping that maybe you could give a little bit more color on just the, I think, just given the week top line environment, and it seems like it's certainly exceeded our expectations. But I think a little bit better than you probably called out back in 1Q2 with the performance falling more in line with the historical seasonal average. So maybe you can touch a little bit on the dynamics or levers that you guys pulled or what happened to kind of be more in line with seasonal trends, despite what kind of continued to be a weak top line. Thanks.

We were really pleased with how we managed mix and revenue per shipment, which came in positively. The ex-fuel revenue per shipment increased by 4.8% in the quarter, which was solid. May was strong, and while we typically expect a step up in the latter half of June, it still performed well, though we may not have fully anticipated that in our expectations. Increased volume and additional shipments from customers provided more opportunities for productivity, leading to cost efficiencies in the network. Overall, we experienced better activity and operational success than we had anticipated four weeks into the quarter.

Great, that's helpful. And then just a quick follow up. You talked a lot today just about the ability to be opportunistic with terminal expansion here in the coming months. Any change in strategy opportunity between your decision to lease or buy this site, additional terminals?

Our first priorities if we find a market that we want to be in or an opportunity, we'd like to own it, if it's cheap, strategic facility, it's got sort of a maybe a 10-year life. We think about volume trends over 10 years when we make a decision to buy an asset. If for whatever reason we can't buy the asset, there's an opportunity to get an attractive lease, we're willing to do that, it's not our preference, but if we're willing to do that, an attractive lease would be something that we can kind of we've got a view as to what the longer term costs are. And we can kind of build a business around it. But strategic assets for sure we want to buy those. Maybe ones in an NOI market, maybe it's a little, it's not available for sale, the investor would like to hold on to it. In that case, we're finding the lease along the economics work?

The next question is from Bruce Chan with Stifel, your line is open.

Hey, Fritz, Doug, good morning and congrats on the result here. Just want to follow up on an earlier comment where you mentioned the national accounts business. And I'm just curious on that topic, are you seeing any more I guess, early activity or early demand on the national account side on the field account side with three PL side? Or is it all been pretty balanced so far?

I think that it's a little bit of color there. If we're in an account that maybe we share across multiple providers, those big we saw, that volume come maybe a little bit more sooner. If it's a field account, maybe that those accounts maybe don't have multiple providers, I think we're probably still seeing where that's going to develop. So it's still early on that we're only two weeks or three weeks into this.

Okay, that makes a lot of sense. But when everything kind of settles out and the dust clears, you wouldn't expect any outside share gain in any one of those categories, necessarily?

It's way too early for me to make a call on something like that.

Okay, fair enough. And then just a quick follow up here, you brought up the nearshoring opportunity. And you also talked about planning for 10-year volume trends. As we think about nearshoring and potential expansion beyond your current plan, can you talk about and maybe what kind of cross border presence you have, and whether there's any appetite to ramp that up?

We have a cross-border presence, particularly in the southern region, although it's smaller than we would like. I believe there is an opportunity for us to grow that as part of our long-term strategy.

The next question is from Christopher Kuhn with the Benchmark Company, your line is open.

Yes. Good morning. Hey, Fritz, hey, Doug. Thanks for getting me in here. Just on, Doug, you and I have talked about your focus on increasing weight revenue per shipment, some of this newer volume is lower weight and lower revenue per shipment. So how do you balance that with sort of your longer-term strategy and your ability to manage profitability?

Yes, I mean, our weights still up quite a bit over the last couple of years. And like I said, I mean, some of that was really driven by focus on that good industrial weighted freight, as we call it, but we've increasingly have national account customers that may be in retail, for example, that see the quality in the service we provide, maybe some limited choices on folks that can handle, increasing volumes with that kind of service. They're asking us to do more and more formation, and sometimes that's lighter weighted shipments. So it's not that it's dramatically lighter weight in terms of moving the average. But, like Fritz said, I mean, we're going to haul the business form, but it needs to be at the appropriate rate. So, I don't think weight in itself is the sole factor in that negotiation; it's the mix of business, it's the volume you get when you show up to pick up a shipment, if they're lighter weight, you can get two or three and that's usually pretty good business. So, a lot of things factor into it.

Okay, thanks.

The next question is from Tyler Brown with Raymond James, your line is open.

Hey, good morning, guys. First curious on what the labor markets look like, right now, how tight are they? And then, given all the work that you've done from a cultural perspective over the last couple of years, how do you feel as an employer of choice? And do you think you can add human capital quickly?

Yes, that's a great question, Tyler. The labor market for drivers remains competitive, and that hasn't changed. Demographics don’t necessarily favor us. However, I believe Saia has done a commendable job over the years, where our success builds on itself and people recognize the opportunities and our growth trajectory. This has helped us in recruitment. Additionally, we've made significant investments in our human resources and recruiting efforts, striving to professionalize these areas and create opportunities for business scaling. These investments are crucial. Importantly, employees want to see our values in action rather than just hear about them. I believe we’ve accomplished this well, which has positively impacted our recruiting. People understand what to expect when they join us, and I think this will serve us well. We anticipate challenges as we increase our volume through this disruption, and it will be essential to replicate this success.

Yes, it's been a good story. I want to touch on a somewhat technical question. You have put a lot of effort into the network and linehaul design over the past couple of years. I'm curious about the flexibility you and Patrick Sugar see if market conditions change rapidly. You mentioned excess capacity in some areas and tightness in others. Do you feel like you can adjust and potentially add capacity in more traditional markets? Basically, can you create additional capacity with your current resources, possibly supplemented with PT, at least in the near term?

Oh, absolutely. We are actively working on that. Our linehaul team is skilled in scaling operations, managing the PT, and scheduling effectively. We've implemented advanced data analytics to handle these challenges, which, while demanding, are well within our capabilities. In the past, events like this would have hindered our operations, but during the pandemic, we demonstrated the ability to quickly adjust to shifting demand patterns, which has helped us meet customer expectations. I'm confident that our skills will enable us to adapt our linehaul network to the needs of our customers.

Yes, love it. All right. Thank you.

We have no further questions at this time, I’ll turn it back to the presenters for any closing remarks.

Terrific. Thank you everyone for calling in and taking the opportunity to hear about the Saia story. We're really excited about the next couple of chapters in this story and look forward to giving everybody an update at the end of the next quarter. Thank you.

This concludes today's conference call. You may now disconnect.