Saia Inc Q4 FY2023 Earnings Call

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 Q4 2023 Saia Incorporated 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. I would now like to turn the call over to Doug Col, Saia's Executive Vice President and Chief Financial Officer. Please go ahead.

Good morning, everyone. Welcome to Saia's fourth-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 the call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some opening comments.

Good morning, and thank you for joining us to discuss Saia's fourth-quarter and full-year results. I must start my comments today with a word of thanks to the entire Saia team for their dedicated efforts as we worked through volatile business trends in 2023. We started our 100th Anniversary Year with an engaged team that delivered a record number of shipments in 2023, just shy of 8 million in total for the year, and in turn, 2023 revenue of $2.9 billion was also a record for our company. 2023 was really a tale of two halves, both shipments and tonnage per workday were down year-over-year for the first six months of the year, continuing a trend that began in the second half of 2022, as the industrial economy slowed. Turning the calendar to the month of July, our industry experienced a generational type of movement as a large national competitor began limiting service and ultimately ceased operations. At Saia, we saw volumes increase by as much as 10% to 20% on a given day compared to trends just a month earlier. Our contingency planning in advance of this change put us in a position to handle the increased volumes almost seamlessly while still maintaining excellent service for our customers. In the months that followed that initial surge in business, we increased our staffing levels by adding nearly 1,500 dedicated employees in the second half of the year, 90% of whom were drivers, dock workers, and frontline leadership to support growth. We focused our team on taking care of the customer as we absorbed all the growth in the second half. We've continued a painstaking process of investing in our network to maintain our service while also optimizing how we provide the service with our expanding linehaul and driving teams. We have plans to open 15 to 20 new terminals in 2024. Our teams are committed to accomplishing this with an eye on always putting the customer first. Those customer-first initiatives have been the cornerstone of our success over the last several years, and included in that is our desire to have more locations through which to serve new and existing customers. In Q4, Mastio released its latest survey results. The results highlight a couple of significant achievements for Saia. First, the scores highlight our continued improvement and positive feedback from our customers recognizing Saia's ongoing investment in service. Second, it's becoming increasingly evident that customers are viewing us as a leading national LTL provider, reflecting not only our investments in services but also our expanding footprint. It is critical to note there has been no drop-off in perceived levels of service. Importantly, we've added nearly 20 new facilities in the last two years. Customers are recognizing our ability to not only improve service but to replicate that improved service in new locations. So today, we'll give a recap of 2023 results and provide an update on our plans for 2024. I will now turn it over to Doug for a review of fourth-quarter results and full 2024 financial highlights.

Thanks, Fritz. Fourth quarter revenue increased by $95.4 million to a record $751.1 million. Shipments grew by 18.1%, and with weight per shipment decreasing by 8.3%, tonnage growth for the quarter was 8.2%. Yield, excluding fuel surcharge, improved by 11.7%, while yield, including fuel surcharge, increased by 7%. The reported yield results benefit from a lighter average weight per shipment versus the fourth quarter last year. Revenue per shipment, excluding fuel surcharge, increased 2.4% to $295.22 compared to $288.34 in the fourth quarter of 2022. Fuel surcharge revenue decreased by 3.4%, or 17% of total revenue compared to 20.1% a year ago, primarily resulting from lower national average diesel prices, which are used to establish the surcharge rate in our fuel tables. Shifting to the expense side, a few key items to note in the quarter. Salaries, wages, and benefits increased by 20.2% from a combination of our increased employee headcount of approximately 14% year-over-year to support our network expansion and volume growth over the last six months, and also our July 2023 wage increase, which averaged 4.1% across our employee base. Purchase transportation expense increased by 8.4% compared to the fourth quarter last year, primarily due to increased purchase transportation miles, partially offset by a decrease in the cost per mile compared to the same period in 2022. PT expense was 8.7% of total revenue compared to 9.2% in the fourth quarter of 2022. Purchase transportation miles were 15.4% of total linehaul miles in the fourth quarter compared to 12% in last year's fourth quarter. Fuel expense decreased by 12.1% in the quarter despite company miles increasing 7.6% year-over-year. The decrease in fuel expense was primarily the result of national average diesel prices decreasing by over 15.9% on a year-over-year basis. Claims and insurance expense increased by 21% year-over-year in the quarter and was up 5.1%, or $0.9 million, sequentially from the third quarter of 2023. The increase compared to the fourth quarter of 2022 was primarily due to an increase in accident-related self-insurance and claims costs, as well as increases in insurance premiums. Depreciation expense of $45.7 million in the quarter was 15.3% higher year-over-year, primarily due to ongoing investments in revenue, equipment, and our network expansion. Total operating expenses increased by 13.4% in the quarter, and with a year-over-year revenue increase of 14.5%, our operating ratio improved to 85% compared to 85.9% a year ago. Our tax rate for the fourth quarter was 22.8% compared to 24% in the fourth quarter last year, and our diluted earnings per share increased to $3.33 compared to $2.65 in the fourth quarter a year ago. Moving onto the financial highlights of our full year 2023 results, as Fritz mentioned, revenue was a record $2.9 billion and operating income was $460.5 million. Our operating ratio deteriorated by 90 basis points in 2023 to exactly 84.0%. For the full year 2023, our diluted earnings per share were $13.26 versus $13.40 in 2022. I'll now turn the call back over to Fritz for some closing comments.

Thanks, Doug. To continue to operate with an operating ratio in the mid-80s, given the activity in the network during the quarter 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 with a talented, growing, and engaged workforce; the value proposition to our customers continues to grow. We initially embarked on our geographic expansion in 2017 with four terminals in the Northeast. Since that time, we've opened 48 facilities as we've covered the Northeast geography while also refining the strategy to enhance our coverage in legacy markets. Throughout, we've actually seen our underlying service offering continue to improve. This success was attributable to our team across the organization, who have spent countless hours supporting these initiatives. I'm excited about the terminals acquired in January and believe this presents a once-in-a-lifetime opportunity for us to be able to bring our offerings to more markets, meet new customers, and serve our current customers more efficiently. The last seven years have proven our ability to execute an organic expansion strategy. Critical to our success are opening Saia facilities and maintaining our culture, which starts with the customer. We believe the unique opportunities at hand will allow us to systematically grow over the next couple of years as the facility additions provide an important supplement to our real estate investment pipeline. As seen from our results over the last several years, we've shown the ability to make substantial investments in our network to benefit our customers while generating improved financial performance over time and efficiently deploying capital. Saia will approach record levels of capital investment in 2024, but at no time in the company's 100-year history have we had a similar opportunity. The capital is focused on continuing to develop our terminal network as well as significant investments in our fleet, providing increased capacity and flexibility for our customers. Key to our success will be delivering the customer-first focus that started in Houma, Louisiana, 100 years ago and has been refined over a century. We continue to have a significant opportunity to develop the markets around the nearly 20 terminals that we've opened over the last two years. Although we're excited about the success of these locations to date, we see considerable runway to build density in all these new markets. Finally, before opening the call for questions, I would say there is still a lot of uncertainty around the strength of the economy. At Saia, we've emphasized the importance of the customer and focusing on the things that we can control. As our industry adjusts and adapts to the evolving economic environment over the coming months, my conviction about the long-term prospects at Saia remains steadfast. Great employees, excellent service, and a growing footprint are all key to securing our position as a long-term share gainer in our industry. With that said, we're now ready to open the line for questions, operator.

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

Okay, great. Fritz and Doug, good morning. Thanks for taking my questions. So if we could maybe start here first with the CapEx guide for '24? Doug, I don't know if you want to take this or if it's for Fritz. But the $1 billion CapEx number, I know obviously, part of that, a good chunk of that is related to the purchase of the Yellow terminals, but can you maybe break down kind of the rest of that $750 million? How that's going to kind of shake out between real estate versus equipment? And just sort of help us think about what's for 2024 and maybe what's related to CapEx beyond that?

Sure, Jack. Good morning. As you mentioned, about a quarter of the approximately $1 billion we are targeting is associated with the Yellow investment. We need to prepare the terminals from the purchase, which will be part of our planned 15 to 20 openings this year. We also have planned investments for those terminals, along with significant construction across the network. We are expanding major terminals in various markets. In addition to the initial $250 million Yellow investment, we anticipate spending over $300 million in real estate this year. We will also be making substantial investments in equipment. Last summer, as volumes increased significantly—by 10% to 20% in just a few weeks—we implemented a contingency plan that involved renting equipment and bringing in additional tractors and trailers to meet customer demand. However, we prefer to use our own equipment to reduce costs. This year, we have increased our trailer count to support nightly operations and city pickups. There is also potential for growth with many customers we serve; if we provide more trailers, they will utilize them. We are working to catch up on these efforts this year, estimating around $400 million to $450 million for equipment. Additionally, we have ongoing IT investments approaching $50 million, primarily connected to the new openings. This includes necessary IT implementations in the terminals, security technology, and new driver handhelds. These are the key areas of focus.

Okay. No, that's really helpful Doug. Thanks for breaking it down for us like that. And I guess maybe for my follow-up question, can you maybe give us an update on January trends to start the year, and maybe how you're thinking about any sequential changes to operating ratio, fourth quarter to first quarter?

Sure, I'll share the December figures as well. The October and November figures have already been reported and are available to the public. In December, our daily shipments increased by 16.5%, and our daily tonnage per workday rose by 6.8%. Looking into January, daily shipments per workday were up 11.8%, with tonnage increasing by 3.3%. Just a note, we experienced several days in January, around six or seven, where many terminals were significantly affected. This is something we all deal with; it's often an outdoor challenge, and January brought quite a bit of weather. It's tough to provide guidance right now; February has started off sunny, but historically it can be one of our most challenging months. We'll see how it develops. March is crucial for the first quarter and, as Fritz pointed out, it's when we might gain a better understanding of the freight economy, typically a stronger season for us. We'll evaluate the situation in March. Regarding the operating ratio, it’s common for the fourth quarter to first quarter to show slight improvements, generally between 50 to 75 basis points, primarily influenced by weather conditions. Given how January progressed, we believe this expectation remains reasonable, although much will depend on March. We're still confident in our ability to improve the operating ratio from the fourth to the first quarter.

All right. That's fantastic. Thanks for the time, Doug.

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

Thanks, operator. Hi, guys. Just following up on Jack's questions. So obviously, this year is a pretty heavy investment year. You talked about 1Q. But Fritz, I'd love to get your perspective on what the margin expectations are for the full year more broadly. I mean, there's one angle where it could be a transition year as these investments kind of hit the P&L and the volume follows after that, or maybe there's a little bit more quicker payback from these investments. You could talk about that and just more broadly, if you expect margins to get back to normal.

Thank you, Amit. The opportunity we have this year lies in the facilities we've planned, which offer a variety of chances for us. Some are entering established markets, where we can provide immediate benefits to customers. These should be potentially helpful for us this year. We also have facilities in the Great Plains states, where we have collaborated with local agents to provide services. Now, we will be able to reach these customers directly, and we are very enthusiastic about that. Customers are expressing excitement about this development. Considering all these factors and the opportunities ahead, as we manage our mix of business this year, I believe we could see an improvement in our operating ratio by about 100 to 200 basis points compared to 2023. If we hit the upper end of this range, it would likely mean a favorable economic environment in the latter half of the year. Regardless, I see significant opportunities to leverage our investments, which is exciting both for us and for the customers. At the lower end of that range, we might be facing a less robust environment. However, I believe that our improving customer proposition allows us to stand out and our team can still deliver strong results even in a softer market, all while making significant investments in the business.

Okay. And my follow up question, I just wanted to ask about pricing. Obviously, you took on a lot of freight in the third quarter. I think you've been trying to optimize that freight. Are we at the point now where you're happy with where we are on that business that you took on? And as you guys expand, you have, I guess, a subscale. You have holes in the national network. As you fill in more dots in the network, does it also give you an ability to kind of go back to some of your large national customers that are maybe giving you discounted pricing because you don't have the full coverage? If you can just talk about the pricing dynamic from that expansion as well?

I believe that's a significant point. We've closely analyzed the freight we've taken on and have moved many contract renewals to the fourth quarter. Our renewal rates have increased by about 50% year-over-year, and our total contractual renewal for the quarter was 8.7%. We are highly focused on this aspect and plan to make substantial investments in customer service this year. However, we need to ensure we generate an adequate return to support these investments. It's essential that we are compensated for the service provided, and to achieve that, we must excel in our performance. We are actively assessing the value we deliver to our customers and the impact of their freight on our network.

Thanks very much, guys. I appreciate it.

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

Thank you. Good morning, everyone. I would like to get your thoughts on the relationship between pricing and the volume you've recently added. I'm interested in how you're thinking about potential trade-offs between the opportunity for volume growth as you expand the network and the ability to adjust pricing to catch up. I'm curious about how you're managing these two priorities as we move into 2024.

We always balance that, but I think that what's incumbent upon us is that this is a very high service level that we're providing. So, our team is very focused on making sure that we're fairly compensated for those service levels. So, we're going to get volume growth simply by some of the network coverage we're going to grow at this year. That's going to be beneficial. At the same time, while we're doing that, we get that priced in the right way. We'll continue to develop the operating ratio profile over time. So I think it's an important part of our business case, and I think if you look back at the last four or five years, this is what we do, so provide a high level of service and focus, and making sure that we are compensated for it.

Okay, that's helpful. And then we've heard some mixed things about 2024 in terms of pricing being more of a return to normal type year after a bunch of years of pretty elevated levels. We obviously had a significant capacity event in what was a relatively soft market from a freight perspective broadly in '23. So, I guess, just conceptually, as you think about pricing '24 versus '23 years, there's still sort of more acceleration opportunity, and maybe that's unique to Saia, but bigger picture, or is it maybe more of a normalizing environment? Just kind of get a sense of what you think the sort of direction broadly for the industry is?

I believe that, overall, the industry is experiencing inflationary costs. It's crucial to recognize this. Those investing in service levels will likely see even higher inflation. Therefore, it's important to maintain a balance in this area. The industry's trends regarding these underlying inflationary costs are not expected to change in the upcoming year. As a result, I anticipate that positive pricing will continue in the business. When I consider Saia, I evaluate our relative position in terms of service and pricing opportunities, and I find this outlook to be favorable for us.

I'd say, Chris, there's a case to be made that we could see another increase in industry pricing. The recent industry event occurred when there was capacity to handle it, but that's because tonnage in our industry has been negative for almost a year at that time. If the participants I see in our industry are given a slightly better macroeconomic environment regarding industrial freight, nobody is giving away their service. They have all invested to ensure quality and improve service levels. If the situation gets a bit better, I believe there's a case to be made that as we manage those additional volumes, we could see another rise in industry pricing. We'll need to monitor the macro situation, especially in the second half.

Okay, that's helpful color. I appreciate it, guys. Thank you.

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

Hey, thanks. Good morning. So Fritz, I think you just said you repriced 50% more of your business in Q4 than Q4 a year ago. I guess I'm wondering how do you do that? And then can you just put some perspective like what percent of the actual business was repriced in Q4? And then maybe just, Doug, maybe you can help a little bit. We got so many moving parts with yields were up 12%, but rev per shipment was up 2% or 3%. Like how should we think about just overall yield growth going forward?

Scott, thank you for bringing that up. Let me just clarify my comments around the contractual renewals. So those would be the number of contracts year-over-year increased by 50%. So, it wasn't 50% of the book of business or something like that. It was just the absolute number of contracts. The key thing with that is, as you know, those contracts are effectively pricing agreements. They don't have a volume commitment to it. So what we end up doing, we're very pleased with how that process went. Now it's a matter of making sure that we hang on to the business going forward. But I think it's a directional indication that's pretty positive for us. We think about it in that context, but it was the number of contracts that we physically renewed this year versus last.

And then, Scott, regarding the rate environment, we implemented our general rate increase in early December. If you examine December shipments, that early increase may have slightly impacted the total shipments, but we believe it was the right decision. Overall, our revenue per shipment for the full year 2023 still showed a low single-digit increase, around 4%. Cost inflation last year, excluding fuel, was somewhat lower than that. I think a mid-single-digit revenue per shipment increase of 3% to 4% is still reasonable for us, and with a better economic backdrop, we might achieve even more. However, the significant drop in weight per shipment has made it challenging to interpret yields in relation to pricing. Nonetheless, I anticipate that underlying pricing and growth in revenue per shipment will remain positive in that low single-digit range.

I want to follow up on the capital expenditures. How should we consider depreciation and amortization along with interest expenses to support this? Should we view this as being $1 billion this year but then returning to a more typical level in the following years, suggesting it was somewhat of an advance? Or do you believe this represents a new baseline moving forward?

In terms of depreciation, it has been increasing as we have expanded over the years. I anticipate another increase if we receive all the equipment and with the timing of some of our construction investments. I expect depreciation to rise by another 15% to 20% in 2024. We finished the year with a significant amount of cash and have made our investment in Yellow. While we are not regularly utilizing our credit line, we will be using it and taking on some debt throughout the year. Consequently, we will transition from earning interest income to incurring interest expense, which I would estimate to be around $5 million to $10 million in interest expense for 2024, depending on the timing.

And then, is this a one-year CapEx or a multiyear at this level?

I believe there is a one-time factor related to the real estate in the Yellow auction. Over time, as we expand the company, you will notice higher levels of capital expenditure that reflect that growth. Therefore, you can expect it to eventually decrease and then normalize. We will not have achieved all the real estate or locations we ultimately aim for, and it’s essential to recognize that our real estate investments will support a growing business. We will continue to invest in real estate over time, and our fleet will need to keep pace with that. You will see improvements in our operating ratio over time, and we will be able to finance much of this using operating cash flow.

Thank you, guys.

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

Yeah. Hi, good morning. I was wondering if you could discuss the new terminal opening plan, perhaps the expectation for net new doors open, some thoughts around the timing of when this is going to get added over the quarters? And what sort of additional revenue contribution do you think this could have in your plan? Thanks.

Thank you for the question. There are a few points to note. The timing for this will be spread throughout the year. Some of the recently acquired facilities will require investment to meet our expected standards, so they'll be opening during the year. The Great Plains facilities will open in groups, likely more in the latter half of this year. Regarding our acquisitions, we purchased facilities like Laredo and Trenton and obtained rights to facilities in Cheyenne and St. George, Utah. These terminals vary significantly in size, so we expect the openings to be spread out over the year. I don't have specific figures on the revenue impact of these facilities since we are looking at the long-term opportunities over the next ten years and assessing market share potential. Based on our past experiences, we know we typically have a chance to capture a portion of the addressable market, and it's crucial to understand the ZIP codes surrounding those areas. In our first year, we might aim for around 1% of revenue in those markets or about 1% market share, which we have demonstrated we can achieve. Over time, this will contribute to our overall growth for the year, along with our ongoing initiatives. We shouldn't overlook the last 20 facilities we've acquired, as they also present significant opportunities for us. We feel positive about the potential ahead.

In response to your question about door count, we finished the year with approximately 8,700 operating doors. With our plans for 15 to 20 new openings, we could potentially increase the door count by around 8% or 9% if all of those open as scheduled. Additionally, we have about 10 relocations planned for the year and are expanding a couple of terminals, which could contribute another 4% or 5% to our total door count. This is our plan as we begin the year, and we will assess our progress as we move forward. As with any year, if circumstances change, whether the macro environment improves or worsens, we may adjust the pace of these openings. There are always variables at play, making it difficult to pinpoint an exact outcome, but these figures reflect the scale of the additions we are planning.

Great. Thanks so much.

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

Thank you. Good morning. Regarding the relocations and net doors, it seems you're planning to move out of some current terminals to expand or relocate to better areas for the new terminals you've acquired. Can you provide an estimate of how many terminals will be closing? Additionally, what do you plan to do with those closed terminals? Will you consider selling them back to a regional LTL competitor, or do you believe they will exit the market? I'm asking this to understand the potential impact on Yellow’s capacity coming back online compared to possible net reductions as you open the new terminals.

I don't know that I've got a good view on what the fate is of the facilities that we might exit. I think we're still waiting over time to see how the industry repositions the assets that have been redeployed here. If you look at Saia's growth discretely over the last number of years, our footprint expansion has been tied to adding facilities and opening doors as some of our larger competitors may be exiting. So as we continue to grow, I mean, theoretically, those that are sort of below us may take on some of that. It's probably still early to call where ours specifically go, but I think a fair number of the ones in the industry likely will exit the industry because, as you watch the auction process unfold, you saw that not all of them cleared. So I think there's some number of those that probably leave the market entirely.

Okay. Thanks, Fritz. And then for the follow-up, you've obviously filled some geographic holes with these acquisitions and organic growth. As we think about filling out kind of major areas of need, so to speak, how does that kind of filter through with pricing with your national accounts? If you have better geographic coverage like a massive big box retailer or a massive industrial consumer, does that really push the pricing needle with that major national customer as well?

It certainly helps, and it gets you some bets with customers that have very high levels of service requirements. We've got some incumbent large accounts that they look at our footprint, and they're really excited about what we've just added because for them, we help solve a problem. They appreciate the very high level of service that they're getting from Saia right now, and now we can go more points for those customers; they value that. We like some of the customers that consider a strategic in those situations; those are people that are paying for service and greatly value service. For them, they make money, and their business is dependent upon a supply chain and LTL partner that is reliable and on time, and with low damage. They're not worried about necessarily pricing per se; they're thinking more about value. In that scenario, having more access for them, that's a win for us, and we like that. We're seeing that as we deal with a lot of the larger national accounts that have been satisfied with what they've been getting from us.

Great. Thank you, Fritz.

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

Hey, great. Good morning, Fritz and Doug. Fritz and Doug, the groundhog said it's an early spring. So, Doug, on your weather concern for February, March sounds like you're all set. Just, Doug, can you talk a bit about your life cycle of conversion? You brought on a lot of operating expenses ahead of time to handle all the freight that you won early last year. Maybe can you talk about the progress you're making and how we should think about that as we move through '24?

Sure, I think things are stabilizing. Over the last six months, we've significantly increased our workforce to accommodate the new normal volume levels. I was pleased with our progress from Q3 to Q4 as we continued this expansion. Our headcount has risen, showing about a little over 3% growth from Q3 to year-end. However, when we look at our full-time equivalents, they only increased by about 0.5% on average from Q3 to Q4. This annual seasonal adjustment is typical for our business, and the current situation has just intensified it. As we approach spring, it’s crucial to have a trained and well-positioned workforce. Most of our new hires are focused on managing fixed operational costs like dock and driver expenses as we build density in our operations, which will eventually lead to more variable costs. I have already factored in these costs as we handle more freight, emphasizing efficiency. Overall, we are optimistic and look forward to entering a seasonally stronger period to see how it all plays out.

So just to clarify that, Doug. You have the personnel you needed, and you're acquiring the equipment that concerned you. You mentioned the lease increase. So the additional cost will now be focused on depreciation and amortization, and perhaps more wage growth. But do you already have those? I'm just trying to understand where we should expect to see incremental costs in relation to the volume growth leverage you can achieve from that.

Yes. Well, you'll just see better utilization or better efficiency across those costs you've added because now you'll start adding volume to them. It's volume because we're opening new markets and can bring in new business and it's volume because seasonally, we expect things to get better.

And then the...

Kind of tracking margins Q3 into Q4 is kind of tough because Q4 is always a seasonally softer quarter. You've got additional holiday noise in the fourth quarter. So it's always hard to compare how I'm doing in Q3 versus Q4. It's just a different kind of cadence on the seasonal trends, which you have to manage through every year, and this year was exaggerated because, like you said, the workforce was ramping up. You're typically not doing that Q3 to Q4.

Yeah, great. Thanks for that. Fritz, you mentioned the pace of, I guess, the contract renewals or the number of contracts. Can you talk about the percent of book yet to reprice or maybe the pace of renewals, has that accelerated at this point? And then the capacity you have, excess capacity, where are you entering, I guess, as you add the additional doors and service centers?

I expect the contract renewals to remain fairly consistent for the rest of the year. However, as we evaluate our business mix in light of industry disruptions, particularly with freight moving between carriers, we may need to adjust those renewals to potentially speed things up. It's crucial for us to manage that mix, and we began focusing on this in Q4. Regarding capacities, we feel confident about our network at any given time, which depends on the origin of the freight. Last year, we faced a significant capacity issue in Salt Lake City, which we addressed by adding a much larger facility, thereby increasing capacity in that market. We manage capacity on a local level and overall, we probably have about 20% excess capacity. We're also making substantial investments in our fleet to ensure we have sufficient capacity to maintain high service levels. We aim to proactively invest so that we're prepared to handle additional business, such as extra drop trailers or opportunities in new facilities, ensuring we excel in service delivery. Overall, we are pleased with our current position and continue to assess and invest in markets where we experience capacity challenges.

Awesome. I appreciate the insight, and congrats. Great stuff.

Your next question comes from the line of James Monigan with Wells Fargo. Please go ahead.

Hey, guys. Thank you. Could I get a little bit more context around the growth cost and kind of follow up on the prior question a bit? I guess like is there a way to sort of think about the utilization headwind on headcount or like in the usage of PT in the fourth quarter is like 100 or 200 basis points? Just trying to understand that in the context of that full year OR improvement that you're talking about. Is it really just utilization coming through? Or are you getting a positive cost spread that adds to that too?

In the fourth quarter, 15.4% of our linehaul miles were purchased, which was an improvement compared to last year but down from 18% at the end of Q3. We need to manage this as we onboard new drivers, which will help us reduce the use of purchased transportation. Looking to 2024, we feel better equipped to meet our linehaul needs with our own workforce. While purchased transportation could be a useful option if volumes recover strongly, it fluctuates. Staffing up during a typically slower season was challenging, but I was glad to see that Q4 improved compared to the same quarter last year, and we aim to build on that progress this year.

Got it. But I guess, is better utilization of the workforce, the majority of that 100 to 200 basis point improvement full year to full year for the OR?

No. I think that what you have to look at, when we study that, we talk about pricing opportunity over time, freight selection opportunity over time. We talk about linehaul optimization over time. Not only is that how we utilize PT, but it's also how we utilize our own assets, driving the load averages, those sorts of things. It's rather than handing off freight, and to an agent to make that delivery in the Great Plains states, that's having a Saia freight truck making that delivery, right? That's building scale in that network. So all those things together around providing that value proposition, that's what drives the OR improvement over time. We'll invest in the business to continue to maintain that and improve it. As you build scale in the business naturally and we've said this all along when it comes to PT, as you build scale in the business, you have the opportunity to build your own linehaul network internally because you have the appropriate scale to do that. In some cases, as in a smaller company, you use maybe a little bit more PT simply because you don't have the infrastructure or the balance of the network. So you use PT assets to leverage that opportunity to service the customer. Now as you grow your business, you have the opportunity to further balance lanes across the network and use a little bit relatively less PT because you're using more of your own assets. But important, all of that, the biggest driver of value in a sizable business without a doubt is getting the pricing right and getting that mix of the business right, and that's the most critical thing to operating ratio improvement.

Got it. That's helpful. You mentioned that higher capital leads to higher-quality service. How should we think about the maintenance capital for that higher-quality service? Specifically, what is the maintenance CapEx requirement for high-quality service?

It's important to provide a long-term perspective on what the network looks like year after year. Over the past three years, we've opened 25 terminals and plan to open an additional 15 to 20 this year while adding the necessary equipment to support our network expansion, increased market share, and higher volumes. This is a dynamic situation, as our fleet and operational footprint continue to grow. Historically, successful carriers in our industry have reinvested 12 to low double-digit percentages of their revenue back into their business. This could be a useful model for long-term planning. However, as Fritz mentioned, we still have the chance to enhance our competitiveness within the network, which will require ongoing investment.

Thank you. Appreciate it.

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

Yeah, good morning. Wanted to see if you could offer some kind of broad thoughts on how we might think about shipment or tonnage growth. When you look at the second half of this year, obviously, that is a big step up in Yellow business driving growth in the first half. But when you think about, I guess, maybe one framework would be if the freight market stays kind of flat, I think given your capacity expansion and strong service, you'd expect to grow, is that like low single digits? Is it more than that? And then if you actually saw a pickup in the freight market, if you saw a bit of a cycle lift, what kind of growth could you get given stronger freight and given your capacity expansion? I know it's not precision, but just directionally, how should we think about kind of those two scenarios?

Thanks, Tom. To start, we need to consider the macroeconomic assumptions for the second half of the year. From my viewpoint, I don't anticipate any significant changes, although there is potential for growth. As we open new facilities, Saia is well-positioned within the market and is competitive with national carriers. We are also leading in quality compared to some of those carriers. By maintaining the right business mix, we see opportunities to gain market share both now and in the second half as the landscape stabilizes. In a more cautious economic climate, shipments and tonnage growth may be at the lower end of the spectrum, but our focus on controllable factors provides us with a chance to grow. While a slower second half is likely in a tighter economic environment, we remain optimistic about the opportunities ahead.

Okay. Thank you. And then the other question would just be like so you've added people in 4Q, I guess you're probably more calibrated to the volume you anticipate on the people side than the terminals, right? The doors can sit there even if you don't use them, but the people you don't want them sitting around. So what would you say, given the current headcount level, what have you calibrated for in terms of shipment growth given the 1,500 you added? Is it like mid-single? Or is it different than that in terms of shipment growth?

Yes. I mean I think it's probably consistent with what we've seen from the trends we've had in the last few months. Doug gave us the update on. I think we feel pretty good about our positioning there. We feel pretty good about our ability to further scale from here if we need to. But yes, I think we're appropriately positioned right now. But as we go into a seasonally peak time, I think we continue to scale up from here, and that's our tradition. That's how we've operated it. I feel pretty good about our value proposition to attract people as we need, and I feel pretty good about staffing right now.

Great. Thanks for the time.

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

Thank you. Operator. Good morning, gentlemen. Doug, you talked a little bit about the trends in January on a tonnage basis. Clearly, as you mentioned, weather was a little bit of a hit. If we exclude weather, are you guys in that sort of up 5% to 6% range? Is that how we should think about it?

Well, I mean, it's probably better to talk about shipments. Shipments per workday up 11.8%. Definitely, a little bit of the shine was taken off that from weather. I mean, we've continued to see a weight for shipment impact from some of the business we've picked up since last summer's event. So, I'd say the 11.8% shipments per workday would have had some upside. We, as all of our other competitors, had a lot of days impacted in January by weather. Your terminals are just either closed or they limited operations, or they're making a few deliveries, but they're not able to pick up freight; the customers close that kind of thing. So that's not unusual for January or February. It just happened, but I'd say thinking about the 11.8% number, it could have been better.

Okay. Fair enough. As we consider the terminals you acquired from the Yellow dispositions, there are still many other leases that have not been sold yet. Is there anything among those that you could potentially acquire as well?

So Jason, we are aware of everything currently in the market, and we continuously assess those assets along with others in our pipeline. Yes, that definitely presents potential opportunities. Some of these assets may be particularly appealing to a competitor, possibly leading them to move from their current facility to a new one. This could create an opportunity for us in another facility. So yes, I believe there are likely some opportunities available.

And do you know the timing of the next round of those assets?

Good question. We monitor it closely. I'm not aware of anything right now.

Fair enough. Gentlemen, appreciate the time. Nice quarter.

Thank you.

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

Thank you for taking the time to join us to talk about the compelling opportunities for Saia. We're excited to start the 100th year of our company with a really, really exciting investment opportunity, growth opportunity, and we look forward to talking about those successes at the end of the next quarter. Thank you.

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