Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2023 Saia Incorporated Earnings Conference Call.

Please go ahead. Thanks, good morning everyone, welcome to Saia's third quarter 2023 conference call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should know that during this call we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the 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 third quarter results. Our third quarter revenue of $775 million surpassed last year's third-quarter revenue by 6.2% and is a record for any quarter in our company's history. Shipments per workday increased by 12.2% compared to last year. Obviously, impacted positively by the shuttering of operations as a competitor began in late July. The sudden elimination of industry capacities presented challenges for customers and carriers alike. But the transition to other providers seems to have gone relatively smoothly. At Saia, we monitor our critical service indicators daily. I was pleased to see that despite the influx of freight in a matter of days, we were able to sustain very high levels of service. In our view, it was critical to maintain high-service levels this time, which provided a unique opportunity to show customers our differentiated service amidst industry disruption. As we've been able to maintain high-service levels, pricing has been positive, with our yield or revenue per hundredweight, excluding fuel surcharge, increasing by 8.4% compared to last year. The reported yields improved in part due to the 5% decline in average weight per shipment. But despite the lower weight, revenue per shipment, excluding fuel surcharge still increased by 3%. The weeks and months that have followed the major industry disruption have been marked by long days for our employees. We've been putting forth a concentrated effort to maintain great customer service and meet the needs of our customers. We supplemented our growing linehaul network with additional purchased transportation where needed to keep our network fluid and service levels high. At the same time, we've also incurred quite a bit of overtime to handle the immediate step-up in volumes we felt. Since the end of June, we've hired and onboarded more than 1,000 new Saia employees. The scale of the hiring effort and the training that is required to onboard each associate has been a necessary cost headwind that had to be absorbed. Our third-quarter operating ratio of 83.4% compared to 82.7% posted in the second quarter of 2023 and 82.4% posted in the third quarter of last year. I'll now turn the call over to Doug for more details from our third-quarter results.

Thanks, Fritz. Third-quarter revenue increased by $45.6 million to $775.1 million, as Fritz mentioned. Yield, excluding fuel surcharge, improved by 8.4%, while yield increased 3.1% including fuel surcharge. Revenue per shipment excluding fuel surcharge increased 3% to $290.79 compared to $282.41 in the third quarter of 2022. Fuel surcharge revenue decreased by 12.3% and was 16.9% of total revenue, compared to 20.5% a year ago, as national average diesel prices are lower than in 2022. Tonnage per workday increased by 6.7% attributable to a 12.2% increase in shipments per workday, offset by a 5% decrease in our average weight per shipment. Length of haul remained essentially flat compared to the prior year at 896 miles. Shifting to the expense side for a few key items of note in the quarter. Salaries, wages, and benefits increased by 15.9%. This change was primarily driven by an increase in employee hours and an 8.9% increase in headcount in response to overall increased volumes during the quarter. Combined with a company-wide wage increase in July of approximately 4.1%. Purchase transportation expenses decreased by 10.2% compared to the third quarter last year, primarily due to a decrease in cost per mile, partially offset by an increase in LTL purchase transportation miles compared to that same period in 2022. Fuel expenses decreased by 9.1% in the quarter despite company miles increasing 5.5% year-over-year. Claims and insurance expenses increased by 12.7% year-over-year in the quarter and were up 6.3%, or $1.1 million sequentially from the second quarter of 2023. Depreciation expense of $45.6 million in the quarter was 12.1% higher year-over-year, primarily due to ongoing investments in revenue equipment and network expansion. Our total operating expenses increased by 7.6% in the quarter, and with the year-over-year revenue increase of 6.2%, our operating ratio deteriorated to 83.4% compared to 82.4% a year ago. Our tax rate for the third quarter was 24.6%, compared to 23.3% in the third quarter last year. And our diluted earnings per share were flat at $3.67 compared to the third quarter a year ago. I'll now turn the call back over to Fritz for some closing comments.

Thanks, Doug. While the last few months have seen a refreshing increase in activity following a year of negative freight trends, it is important to highlight that the macro freight environment outlook remains uncertain. At Saia, we'll continue to put the customer first and seek to fulfill service commitments for both existing and new customers. Our first-half operating results highlighted an important underlying business trend, as our internal growth initiatives are proving successful. We look to continue to leverage those initiatives along with maintaining new business to grow amidst this quarter's market disruption. It's important to note that in the early days of the industry consolidation, customers often look for available capacity. Longer-term, we strongly believe that customers will gravitate to those partners that provide the best service and support their value proposition. Maintaining those service levels requires continuous reinvestment in the business. As we have a long history of doing, we're going to make sure that freight rates are commensurate with the quality service we provide. We will continue to be opportunistic regarding terminal expansion and acquisitions. We will continue down the path of expanding our network, not only to reach new customers and markets that we may not currently be serving, but also to get closer to customers in existing markets. Our financial performance positions us to take advantage of investment opportunities. We continue to manage a pipeline for expansion and will look to match those investments with the economic environment. In some cases, we may accelerate an opportunity prioritizing those that most immediately enhance our service proposition. Our value proposition is elevated in the eyes of our customers as we move closer to them and can provide more for them. We're also focused on developing businesses around the 20 or so terminals opened in the last three years. History shows that if we have a meaningful footprint in the market, we can achieve an outsized share compared to our national average industry share. With this strategy being executed by the best team in the business, I remain excited about our ability to gain market share and improve profitability over time. With that said, we're now ready to open the line for questions, operator.

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

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

Yes. Good morning, Chris. Yes, like you say. I mean, sequentially. Q3 compared to Q2 shipments per day are up low double digits. Quite a big step-up, but I think we absorbed the change pretty well even in late July and got into a better place in August. So you know, FTEs, I think from Q2 to Q3 were up almost 9.5% compared to a headcount increase of about 7%. So you can see that we already used a lot more hours to handle the business to onboard and train new associates and all that. I mean, if I just look at our performance overall, as we moved through July and August and September, it got quite a bit better. So I think we've absorbed that initial call-it 10% to 11% step-up and then got to a better run rate. So, I expect kind of more normal seasonality now. In not only in the volume trends but how we operate historically, Q3 to Q4, it's about a 200 basis point degradation if we look back the last three to five years and we've got less than a month under our belt and I hope we do a little better, that's little bit better than that. So maybe it's a range of 150 basis points to 200 basis points of degradation is what we might expect.

Okay, that's helpful. Appreciate the color. I guess just maybe a quick one on the price environment. Just wanted to get a sense of how you're thinking about that. Obviously, we can see some of the metrics and your results have shown that acceleration. I guess where do you think we are in this process of moving through? Obviously, you put a GRI in relatively recently and that stepped-up. So how do you think about sort of the pricing setup over the course of the next several quarters?

Yes, I mean, Chris, as we look at managing the book of business. I mean this is kind of in our playbook, where we make an assessment of the investments we have to make to support high levels of service. As the contractual renewals come up, I would expect that we'll continue to work on making sure we're driving our pricing to market. At this stage, I think there's still runway for us in that regard. I think we have a product that our sales team can get out and help drive that to get us closer to where market should be for the level of service we provide to customers. So, I think our GRI reflects that and you will see that across our book of business going forward.

I appreciate the time. Thank you.

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

Thanks, operator. Hi guys, hi Doug. I wanted to just circle back on that OR commentary for the fourth quarter because I know you're comparing it to the last three to five years. I just don't know how relevant that period is given where you and the industry are today. And so if I were to just think about the amount of onboarding you did in the third quarter. I guess, it takes 10 days to train somebody and you've got 63 days or whatever in the quarter. So there's a big productivity deficit, I would imagine. So as you kind of think about the relationship between PT and labor costs, why couldn't we see much better than that 200 to 300 basis points sequential, because I think the wage increase went in early July. So long-winded way of saying is that just conservatism or just talk about the walk in terms of the productivity deficit that you guys had in the third quarter?

I don't know. I mean, if you go back to my example in Q3. I mean the OR in July was north of 86%. So I think kind of a monthly OR and then for the quarter to end up where it did. I feel like we got back in a pretty good spot. Even though we're still, we're bringing on, we're still a lot of equipment to handle this business and we'll step-up our equipment deliveries and buys next year and stuff to operate well at these higher levels, but we still have some costs that are related to this unusual event. So, there's not, in my view, I'm not building a lot of conservatism there. You know, 150 to 200 basis points is kind of a little bit more open range than guidance straight to the historical 200 right now. I hope to do better than that, but I think we're still investing to maintain the high service level. The GRI has been announced, it will go into effect beginning of December and that impacts 20% to 25% of the book of business. But again, it's a seasonally slow month to be putting that in place. It's just necessary. And you know from following us closely, we've absorbed all this volume. We've done a good job for our customers. I don't think you heard any anecdotes during the quarter of big service disruptions in our network or anything like that. So, we spent money to provide good service and now it's just go into that grind we've been going through for a few years. We handle the business and we got to say hi, we've done a good job for you, but it looks like we're below market for the value we're adding and we need a rate increase. So, yes. We don't mind running off a little volume, if it doesn't work. So, I was just, we've got the new volumes out of it with existing customers, we meet some new customers. And now we've just got to work, right. We've got to price it and play the long game here, but we're really pleased with how good service stayed throughout this. And we didn't really have many weeks we walked into where we weren't prepared. And that's just kudos to all the folks who made it happen out in the field and our ops team and all the investments that we've made over the years to do the job. People will now, we're going to go out and try to get paid for.

Okay. And then just as a follow-up. Obviously, pay very close attention to the last year data and if you look at the Mastio data carefully. It looks like you guys are even more of a value today in the eyes of the customers than you were last year. I mean, you're already pretty nice value last year. I just wonder if the pricing is keeping pace with the service sustainability and whether there's an opportunity to be more aggressive. I know you did a GRI of 7.5%, the highest GRI tied to 2021. So it's a little bit of a weird question, but I wonder if you could be even more aggressive given - in the eyes of your customers the survey tells you that you are even more of a value today than you were last year?

I mean, we've, as you might expect, studied the last year's data as well. One of the things that's particularly pleasing as we look across all the attributes is how many that we improved by year-over-year in terms of that customer experience. And that's really important because that then gets to the place that says. You know, that level of service requires a high level of investment on our part and that's going to require that we continue to push and make sure that we're paid for all of that investment. Customers are getting a lot of value for it. And at the same time, that requires investment from us and that's going to require that we make sure that the pricing is in line with where it needs to be. So, I look at that data, and I'm pleased with the service performance because I think what that says is that Saia has an opportunity to continue to pursue best-in-class opportunities and then get paid for it. I mean, that's all part of it and it requires investment, and we'll maintain that service.

Thank you very much.

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

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

Sure, good morning, Scott. So September. I don't think we have the September numbers yet, we haven't given those. So September shipments were up 16.3%. The tonnage was up 9.7%. With weight per shipment down 5.7%, all of those per workday numbers. October shipments per workday up 18.6%. And tonnage is up 8.4% per workday in October. So, weight per shipment continuing to run lower down 8.6% so far in October, that's sort of the middle of this week. And in terms of the OR, I mean look, July has got 20 days this year, we kind of figure we had a half a day in there too because of where the drive fell Monday was kind of a hanging day. So yes, I mean that's a tough month with 19.5 workdays in it, but I'm just saying the magnitude of improvement in August of 300-400 basis points really shows us well, more than that, 400-500 basis points, really shows us that we absorbed it pretty well despite the need for extra labor in linehaul support. We're pretty pleased with how we managed those volumes. And as we get folks settled and can bring the PT or the overtime costs down, that's an opportunity. Yes, as we run into the seasonally slower months for the next few months. I mean, that's what you do, right? I mean, we managed down hours every day and every terminal and get ready for it because seasonally that's what we're walking into for the next few months.

And then people - maybe people are disappointed near-term OR fine. Fritz, I wanted to just ask you about like ultimately what the operating leverage and margin profile could look like a year from now, right? I think in the past you've talked about 100 to 200 basis points of margin improvement a year. I know it's early, but we're digesting some cost this year. I'm guessing a lot of opportunities to get more price next year. Is next year a year where it should be in that one to two point range, should it be better than that given what you know today? Just how should we think about ultimately where the operating leverage and margins can go?

Well, I think that is a big, big thing to think about, is that if you look at this over the longer term, I don't see an impediment for us not driving this into the 70s OR right? That's out there, that's available to us. We have proven that we can handle a disruption. A big step-up in volume changes and all those things. Our team is really conditioned to maintain very high levels of service and if you do that, you've got an opportunity to continue to push our pricing to where it ought to be in the market. Now, the tough part about the question you ask, Scott, is going to require next year, I would expect to have our improvement overall as we exit this year. And I think the range you talk about makes some sense. Maybe it's 150 to 200 basis points. That makes some sense. But, I can't really opine yet on what the overall macro-environment is going to look like next year. I hear things that are a little bit positive and constructive. I'm sure like to see that realized. But, I think that what's most important on the things that Saia can control, I think we have done a great job of handling our customer's business this quarter. And I think what that does is that positions us to continue to drive results. I think we ought to perform well next year in a good environment. And I think, most significantly longer-term I don't see a limit to what we can do as an organization. So I'm excited about the prospects.

So the answer first said hi, we've never had mid-teens or high-teens shipment growth before. Ultimately, this is going to be great, but that's a big number, it's just going to take maybe a little bit longer to sort of fully digest and leverage. Is that sort of the idea?

Yes. I mean, we've got, Scott, we're going to build and we talked about the 1,000 folks that we added on the team in the third quarter. I mean, 40% of those were drivers. So what that is, is that's us building density in our internal resources, that's driving our linehaul costs, leveraging our linehaul network as we get scale in the business. I think we're going to see the benefits of scale. But what's important while we're getting that figured out and getting that scale, to the right level, we cannot absolutely do not come short on service with customers. So our focus is always going to be service first. And then let's get everything - let's build the cost structure around that and I think there is an opportunity for us to certainly leverage the business. That's the great value of what we can drive in the organization, because we've proven that we can provide repeatable high levels of service.

Makes sense. Thank you guys. I appreciate the time.

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

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

Yes. I think when you look back the last couple of years and we saw a more favorable environment as we grew adding facilities. I mean, you saw us getting so our incrementals is sort of 25% to 30% in there. I think as you go forward, as we get more normalized, we've been able to bring all this new freight in our network and stabilize, continuing to open facilities. I think you'll see us return our incremental margins to that level. Now, of course, if most of that comes in the revenue line in the form of pushing our pricing to more market levels, maybe we would push up that incremental margin profile. But as the company builds scale over time, I think that scale automatically means that those incrementals are going to get better. And I feel really good about that. I think that's what's going to drive this the OR into the 70s frankly it's, because our ability to execute on that.

Yes, absolutely right. And we've seen accelerating incrementals from some of your competitors as that happens. So that makes a lot of sense. I guess maybe for my follow-up question. Just kind of going back to October for a moment. There was further disruption from another competitor due to a cyberattack. Did you guys see much of a - have you seen much of an impact from that as, I guess that would have been the first-half of October? And yes, I guess, how do you think about all things considered, the amount of latent capacity you have in the network as it stands today?

Yes, good morning, Jack. Yes, we definitely saw an impact for a few days there. I mean, normal seasonality for us September to October is down about 2%. And we're running better than that we're down, call-it 1% now. So, we definitely saw some effect from that disruption there and it feels like they got it resolved. But there were a few days there, where it was, we saw it flow-through. So, in terms of incremental capacity - we're probably Jack it's going to be pretty similar response that have had in other quarters. It depends on the location, but I think - we're sort of 15% to 20% incremental capacity. Some of the pinch points. We had Salt Lake City, we opened a replacement facility in that market in this quarter that's a huge opportunity for us. So that helps the capacity numbers. So it, I think we're in that range, but what - we also know how to flex, we have to. So, we can go beyond that if need be.

Okay. Thanks here, for your time guys.

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

Great, good morning. Great detail on the cost leverage. Just a follow-up on that last question there. Fritz you got 15% to 20%, but you grew volumes 18% October. So it was 15% to 20% before or was it 20% to 25%, 30% before and now you're at 15%, 20%. I just don't understand, just with the phenomenal thoughts. And then just other data - on time performance and claims ratios. Can you give us an update on those?

Yes, so on the capacity sort of comment. One of the things that we know how to leverage, we know how to leverage the linehaul network well. And judiciously have used purchased transportation in that we know how to manage that well to keep maintaining service levels with that. So that's kind of our flex capacity. We've learned on that. So we're pretty comfortable with it. With respect to the service levels, we measure service levels on a variety of different points, whether it's pickup completion on-time delivery, it's claims and we're tracking at or below - at or above where we were prior to not only this disruption. But if you go back to even the most disruptive times. So we're very pleased with where we are with that. That's an important measurement for our customers and as you know we measure that every day.

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

Yes, and the claims number is what, 0.58% and on-time we measure it, we have our internal measurements and we're 98% on-time outside - up 98%, 99% out as we report customers and internally we measure it on our own metrics we're well above our internal standards.

Okay. Just - I guess, with such a strong volume gain, your thoughts on the sustainability of those volume gains we've heard some of the peers struggled. We saw one carrier give some back in October. Any thoughts on the movement back of some of these volumes or the sustainability, continue to grow in the face of others struggling?

Well. I think people that valued service and on-time and quality are going to gravitate to Saia. I think folks that may be looking for cheaper service, lower-quality service, they're going to move on and we're okay with that. We're not in the game to see how much incremental volume we can drive. We're looking at creating value, not only for our customers but for our shareholders. So I'm not necessarily worried about seeing how fast we can grow. We're more worried about executing and making sure that we're in a position where we can get paid for very high levels of service and consistency.

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

Yes. Absolutely.

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

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

Yes. I think it was great to get the Salt Lake City facility opened that helped kind of our Western region kind of the, such a big break operation for us that's pretty exciting. We've got some projects coming online in the first quarter that - if we continue at these levels we're going to get some benefits, primarily in the ones coming in the first quarter. And ones that frankly, it's an incremental service opportunity for our customers. So, I think that's exciting. And so, I don't think there's one call out per se that would say that it's a capacity play. Most of these that are online at this point are ones that are really related to getting closer to the customer, so those are great value.

Got it. And then just in terms of some of the new volume brought on, is there any way to understand sort of the mix, between sort of new customers versus existing customers, where you can sort of increase density their scale that you have with them? Just any thoughts there?

Yes, so a good portion of what we brought on actually was with maybe there were shares where we had an account that we shared with the rest of the market - there's one player exits the market. We picked up incremental levels of business from a customer. Those - that freight gets some economies with the pickup part, but at delivery may actually go to different markets or have different profiles. And in those cases, that may not operate quite as efficiently or effectively. So, it's very important that we then make sure we understand what the impact of this new volume is. Some of this volume may not be something that makes a whole lot of sense for Saia. It may need to gravitate somewhere else in the market. Whereas, there could be a customer that we picked up shared account or we picked up some additional business. And they say, while the service level is really helping to drive value in our organization. I need to do more business with Saia. And we just got to make sure we get the pricing right. And we get that right, and I think that's a winning proposition, both for the customer and us and that's business we keep over time.

Great. Thank you.

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

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

Yes. I mean, it's a little early to give us some real clear CapEx guidance, but we're expecting a pretty big year next year-on. As you point out on the equipment side. Both in our network operations, as well as city operations, we see a good benefit for if we're able to secure more equipment, put more trailers out there customers in customers yards. Our network fluidity requires more pumps each and every year and especially after this volume step-up. So you'll see a step-up in investment for sure on the trailer side. Our age of fleet on-track sides in pretty good shape. We'll have some growth equipment coming in, but, I could see a CapEx number next year certainly running in excess of $0.5 billion. And again, we're still in the 2024 planning stages right now, a lot of moving pieces as you are familiar with on the real estate front. So, we'll give you some better guidance as we're able to put it together ourselves, but a big opportunity on the equipment side. I think to be in a position to keep running the network effectively take down some PT costs, and then take share if we can put trailers and big customers yards were rent and a lot of equipment right now. So, we want to pull that rental cost out and get equipment out there.

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

No, I mean. I think primarily. I mean, what we've seen in the weight per shipment as customer-driven like Fritz mentioned some of the accounts we may have been servicing that others were into, and as a competitor leaves you get more opportunities there. And some of that for us, it's obvious we've had some increases with retail customers and some of that pending to be lighter-weight. And like Fritz said. I mean, if you go into the same-location and get an extra shipments that's great you take-out a piece of the cost component even if the revenue per shipment is slower that math works, but there's instances where we're serving one DC for a big retailer and all of a sudden they need help. And another DC so it's not pickup economies, it's another. It's another pickup cost and the revenue per shipment on some of that retail steps lighter and that's the way slider and that's what's driving the revenue per shipment.

That's great. I appreciate the color.

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

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

Yes, I mean. For us, as we build scale and density in this. Certainly, we want to make sure we leveraged our internal assets and capabilities. One of the exciting things that I think we have to offer is that it's a great place to work for somebody that is interested in a career in transportation and logistics and professional truck driver and the business is growing healthy, with a lot of opportunities. So, I think that it's when you're recruiting drivers in this market that's an effective place to be a great place to be and I think we were attractive to that and we'll continue to focus on hiring. Because, I think that it's we see runway to grow the business, we see runway to optimize the business. As we continue to utilize more of our internal scale that we've developed in our linehaul network that gives us an opportunity to release support and build that driver force around that. And I think it's something that it's a challenge always is, but I think that's a competency we're developing around recruiting too.

Got it, thank you.

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

Hi, good morning and thanks for taking my question. I just wanted to ask on the freight onboarding process this quarter. Your release mentioned you're focused on ensuring the freight profile was appropriate and margins met expectations, sort of, just wanted to so if you could speak to that process a bit more. Obviously, you took on more freight than others, at least from the outside, it wasn't profitable at the prior carriers. So just wondering if you could comment on some of the variables you look at with respect to margins, returns, density things like that?

Yes, sure. Our focus is really making sure we understand the freight characteristics that the freight that we pick up, make sure that it's understanding what its impact is in our network where we're going to make those pickups and deliveries. And when you do that, all those things you've got to make sure the pricing is right. So we pretty rigorously review that on an ongoing basis and to the extent that there are situations where it's not priced appropriately, then we've got to have the conversation with the customer or we've got to come through and provide the customer - remind the customer the service they're getting, and then be in a position that we can make the appropriate pricing adjustments. And we started that as soon as we saw the changes in the marketplace, we've been kind of rigorously on that and it shows up in our results. You saw the GRI that we've communicated earlier this week, and those are all pointing to our focus around making sure that we're compensated for these high levels of service. We know what our customers are telling us, we watch very closely what the feedback is both internally as we measure customer satisfaction on a daily basis. And then we watch what third parties say about our - what we're doing to satisfy the customer. We look at that and we say, listen, the pricing has got to be right, based on what we're providing to the customer. And that makes it critically important that we do not disrupt service. You only get paid when you provide great service. So that's kind of our focus.

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

Maybe there's a little bit of optimism out there, but I think it's - we'll just kind of get a few months under our belt before we think that we've steered through choppy waters. But I think that into next year, maybe it's a little bit more optimism, but we'll see. I mean, I'm kind of a - we're sort of show me. Let's see the evidence of things being better. In the meantime, let's focus on handling the freight for the customer. So when the business does and the market does return, which I think whenever that is, be it next year or the year after, we need to be in a position where the customer says, we got great service from Saia. So we're going to stay here and that we continue to grow that relationship. So today, I don't know that there is a big call out there, but it's - we've continued to operate through this.

Thank you.

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

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

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

Yes. I mean, what we look at right now, we've had a pretty big step-up in shipment count. So we've immediately, as we saw that develop, really ramped up our recruiting efforts, and we added 1,000 employees as a result of that. And I think we'll be judicious about that. But I think as we continue to scale, we will continue to add resources where it's appropriate. And I think that, that - we feel pretty good about our ability to do that. We've also - as we've opened facilities in new markets, we've done a good job around recruiting there. And I think that's something that we've been successful with. So I don't necessarily - I think in the next year, I think we can continue to scale the business and look for opportunities as we build density, maybe we find that lower-cost linehaul option, and that's usually internally resourced linehaul. So if we make that happen. I think we can continue to grow this and build density in the business.

Very good. Thank you.

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

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

Yes. Anybody that we hire that comes into Saia, we're going to focus on - there's a principle that we have, which is we're going to put the customer first. So that's the first kind of screen that we think about. We're going to work in a collaborative environment. And then we have kind of how we operate and provide differentiated service. So that requires an appropriate level of training. And we do that with anybody that we bring through our recruiting process. The worst thing that we can do is provide sort of uneven service to a customer. A customer can't - they're counting on us to provide the appropriate training and the team that will provide the high level of service. So that's kind of how we think about it.

And what percentage of the drivers did come from Yellow?

Listen, what we focus on is we recruit everywhere, and we take a whole range of candidates, and we've put people through our process. And once we find the folks that meet those core values we kind of operate from there.

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

The exciting thing when you're providing the service levels that we have, we have an opportunity. We think to grow in just about every market that we're in the country. I mean we're thrilled with what we've done in Atlanta. We've opened two terminals here in the last few years, and we've seen great success there. And there are three of our highest performing terminals in the company now in the Atlanta market. Historically, the one term we have, we struggled with. But maybe there's an opportunity for us to add a fourth year. Because the customers are getting a good experience and you have the opportunity to grow that. So in that case, it's not a capacity issue. It's really about just reach to the customer. So I think that those opportunities are kind of around the country, and it can be new markets we haven't been in long and it can be ones we've been in for a long time. I think there's - that's what's exciting about where we are.

Fair enough.

You know, Jason, and just to follow up on that. I mean, I think if you were able to go forward and look back in a few years and say, where did all the growth come from? I still think our biggest opportunity is in markets that we already say we have a presence, but we don't have a representative footprint to provide the same level of coverage as some of our peers. When I think of some of our legacy markets, if I think go down to our Gulf States routes and think about Louisiana and across through Texas. I mean, we have much higher market share there in terms of revenue share than we do in other parts of the country. So if I look at Texas, for example, we've got probably close to a couple of dozen terminals down there. We've got a representative footprint that matches some of our national peers. We've got a double-digit revenue share there. And you compare that to our headline share in the industry, and we're a 5% or 6% share of revenue. But in a market where we've got a similar footprint, our service allows us to go take share. So if we go do that in the Northeast, we've gone from zero there to something like probably 3% to 3.5% share these days in a matter of a few years. But there's several regions in the country where we just need to be closer to the customer. We say we cover the market, but if we had two or three more terminals, we can get share. So it's an exciting time, and we look forward to getting a more representative footprint and taking that share.

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

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

Appreciate the color, guys and the time.

Thank you Jason.

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

Yes. I mean, the yield calculation itself, as you know, is influenced a little bit by the weight per shipment decline we saw. But I think - I mean, our revenue per shipment growth was still positive at 3% ex-fuel, with a 7.5% announced GRI, and with growth in some of our national account customers that may not be operating as well with these new volumes, we're going to push for at least that. Our contractual renewals in the quarter were 5.6%. And that stuff that was really started leading up to the disruption in the industry. So they don't really even reflect the tightness that's going on post that event. So, I mean, that rate was higher as we exited Q3 than the headline 5.6%. So our recent renewals are running higher than that. We continue to think there's an opportunity to raise rates and the yield will be influenced a little bit by where the weight goes from here.

Yes. Okay. All right. And then I wanted to ask you kind of related to the growth in the terminal network. How we should think about your approach with the Yellow terminals? I guess it's kind of twofold. One would be how do you think we should measure success? So the results come out, you issue an 8-K. If you get more terminals, is that a good thing? I would tend to think so, I don't know if it's like, hey, you get five, that's kind of not as good, you get 30 terminals, that's great. So, I guess just kind of high level, how might we think about whether you're successful or not with the Yellow terminal bid process? And then, I guess related to that, it does seem like you have a real opportunity to pull forward some of that or build the pipeline in future growth. And I think the market's got a lot of confidence, notwithstanding some noise today in your ability to execute. So can you think about, hey, we'll just really pull forward and will kind of load up on future growth because we have the strategic opportunity to add a lot more terminals as opposed to doing kind of year-by-year?

Yes. So Tom, the way I would think about this is a little bit how we've been thinking about it ongoing is that we are continuously looking at our pipeline of opportunities, which extends out for a couple of years. And we're very judicious about identifying locations where they need to be, what the profile of those facilities are, where are our customers and making sure the facilities that we had are there. I think our - if you look back at our track record, we know how to open things organically. We know how to build facilities and open them and do that in a pretty value-adding way. As far as what is going on with the Yellow process, I mean, I think that those are all facilities that are in some form are going to be available to the market, right? So, we consider anything that's out there that those are facilities that we look at and our position in the market are ones that we take it - we're not buying facilities from companies that are much larger than we are in our space. So, if the available assets are there, and we have the opportunity to participate in those or as others maybe pursue opportunities and need to vacate a facility, those are things that we do pretty successfully. So this - I don't have a measurement around how many we need to have at any given point in time. I have a measurement that says, we think we probably need to get to 240 to 250 facilities to provide apples-to-apples coverage and service to best-in-class. And I think we build to that point. We'll do it in a way that's judicious over time in which we are not only creating value for our shareholders but also for our customers. So it's still a multi-year process, however you think about it.

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

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

Okay, thanks.

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

Okay, great. Yes, that makes sense. Thank you.

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

Hi, good morning.

Good morning.

Good morning. I think pretty much every topic has been well addressed here. So I'm going to ask you kind of one bigger picture question here. Maybe with just the benefit of hindsight now as you kind of navigated this major disruption for the industry in terms of how everything has panned out over the last couple of months. Maybe that's in terms of volume acceleration month-over-month, pricing, capacity additions, service performance, is there anything that has surprised you?

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

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

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

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

Hi operator.

Sorry, go ahead.

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

Yes. Got it, Chris.

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

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

Appreciate you guys. Thanks.

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

Yes. My guess is what will happen? It's a pretty big footprint, and there will probably be dispersed to the market to other LTL operators will probably have some potential opportunity either in the kind of how that process plays out or the secondary part of that process is people may reposition their networks to match what's available and what the new facilities are. So - and there's going to be some cases some of those don't get returned to the LTL business because maybe the economics make more sense for that to turn into a warehouse or industrial real estate property of some kind. So, I think it remains to be seen what's going to happen to all of them. My guess is, is that even if one player gets them all, but I think that I'm not sure how likely of an outcome that is. But if it is, what I think would happen then is even that those players or a player that would still probably lead to facilities being shifted around and some staying in service in the industry and others exiting. And I think what's important to note is that kind of ongoing even without this current situation, I mean these LTL assets are getting traded amongst competitors as it is now. We've - the facilities that we've opened this year, certainly, we've opened new ones, but we've also purchased ones from folks that are repositioning their footprints on their network. So I think what's important is the ability to get those facilities and then replicate service. And I think as these facilities trade and move within the industry, I think you'll see that. So it will be kind of probably a combination of all those things. So first would be whoever ends up if there's one bidder that gets it all and they probably reposition some of those in their own network. Others maybe they sell, they get traded amongst other competitors and some will ultimately probably exit the market entirely.

The exit of that capacity tightened the market from a pricing perspective overnight, do you have concerns that the redeployment, even if gradual, can loosen it even as the economy is hopefully getting better next year and the year after?

No. I think the - if I look at how the market has responded here in the last several years, I think that generally, this is a high-cost inflationary business that requires a lot of capital. And those - as facilities get redeployed and some get expanded. And as the macro economy grows, I think those things will all kind of match. I'm not really concerned about significant increases in capacity. Frankly, if you watch what's happened over time, it continues to shrink.

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

Thank you, Doug. Thank you, Fritz.

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

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

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