Saia Inc Q1 FY2024 Earnings Call

Good morning, and welcome to Saia's First Quarter 2024 Earnings Conference Call. As a reminder, today's conference is being recorded. I would now like to turn the call over to Doug Col, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone. Welcome to Saia's First Quarter 2024 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 first quarter results. While underlying macro trends remain lackluster in our view, our year-over-year results in the first quarter reflected tremendous share gains made since last summer. In the quarter, we averaged approximately 33,000 shipments per day compared to approximately 28,500 per day last year, or an increase of nearly 16%. We've opened 7 new locations in the past 12 months, and our employee count has grown significantly, allowing us to staff the new locations and enabling us to handle the growth in volumes while still providing our customers with excellent service. I'm particularly pleased to see all of our key service performance indicators continue to trend positively as we continue our expansion. Our first quarter revenue of $754.8 million increased from last year's first quarter by 14.3% and is a record for any quarter in our company's history. Yield or revenue per hundredweight, excluding fuel surcharge, increased 10.5%, reflecting a constructive pricing backdrop despite a subdued demand environment in a traditionally slower period in our business. Revenue per shipment, excluding fuel surcharge, increased 1.4% despite a headwind from weight per shipment, which was down 8.2% in the quarter and length of haul also down modestly by 0.4%. Our revenue per shipment growth ex-fuel surcharge continues to be the result of positive pricing and effective mix management. With our continuing high service levels, we actively review the performance of all of our accounts and are not shying away from having rate discussions when necessary based on profitability, not the calendar. Our first quarter operating ratio of 84.4% improved by 60 basis points compared to our operating ratio of 85% posted in the first quarter last year and matches our best ever Q1 OR posted in 2022. As we continue to absorb the growth in volumes compared to the prior year, we've continued investing in our network to maintain our services while also optimizing how we provide the service with our expanding line haul and driving teams. Our plans to open 15 to 20 terminals in total this year remain, and we'll also continue relocating some existing terminals as we've done with 4 so far this year. Relocations are an important part of the story, as these relocated terminals often offer multiple benefits, including better strategic position in the market and added capacity to better serve existing customers and also perhaps put us in a better position to serve new customers. Our teams are committed to accomplishing this growth with an eye on always putting the customer first. Our 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. The results of Mastio's latest survey highlight a couple of significant achievements for Saia. The scores highlight our continued improvement and positive feedback from our customers are recognizing Saia's ongoing investment in service and expanding footprint and customers are viewing us as a leading national LTL provider. We've added 20 new facilities in the last 2 years with improving perceived levels of service, which is critical to note. Customers are recognizing our ability to not only improve service, but to replicate that to improve service in new locations. I'll now turn the call over to Doug for more details from our first quarter results.

Thanks, Fritz. As I mentioned, first quarter revenue increased by $94.2 million to $754.8 million. Yield, excluding fuel surcharge, improved by 10.5% and yield increased by 7.6%, including fuel surcharge. Fuel surcharge revenue increased slightly by 0.8% and was 15.7% of total revenue compared to 17.8% a year ago. Revenue per shipment ex fuel surcharge increased 1.4% to $293.96 compared to $289.87 in the first quarter of 2023. Tonnage increased 6.2% attributable to a 15.7% shipment increase, partially offset by an 8.2% decrease in our average weight per shipment. Our length of haul decreased 0.4% to 888 miles. Shifting to the expense side for a few key items of note in the quarter. Salaries, wages and benefits increased 14.3% from a combination of our employee head count growth of over 15% year-over-year in response to overall increased volumes during the quarter and also the result of our July 2023 wage increase, which averaged approximately 4.1%. Purchased transportation expense increased by 12.4% compared to the first quarter last year and was 7% of total revenue compared to 7.1% in the first quarter of 2023. Truck and rail PT miles combined were 11.4% of our total line haul models in the quarter. Fuel expense increased by 3.7% in the quarter, while company line haul miles increased 10.6% year-over-year as a result of increased shipments and decreased cost of diesel fuel compared to the prior year. Claims and insurance expense increased 24.2% year-over-year and was down 8% or $1.5 million sequentially from the fourth quarter of 2023. The increase compared to the first quarter of 2023 was primarily due to increased activity and a small increase in premiums. Depreciation expense of $48.8 million in the quarter was 13.9% higher year-over-year, primarily due to ongoing investments in revenue equipment, real estate and technology. Total operating expenses increased by 13.4% in the quarter and with the year-over-year revenue increase of 14.3%. Our operating ratio improved to 84.4% compared to 85% a year ago. Our tax rate for the first quarter was 23.7% compared to 23.2% in the first quarter last year, and our diluted earnings per share were $3.38 compared to $2.85 in the first quarter a year ago. I'll turn the call back over to Fritz for some closing comments.

Thanks, Doug. Our customer-first focus continued to deliver tangible results across our organization. In January, we're excited to close on what we view as the generational opportunity for our company to build our real estate pipeline and develop an opening plan that spans 2024 and 2025. As we stated from the outset of our geographic expansion initiatives in 2017, it is absolutely imperative that we improve while replicating service as we execute this plan. As we continue to invest in our network and expand our footprint to better serve our customers, we anticipate capital expenditures for 2024 to be approximately $1 billion. As noted in Doug's comments, we're seeing the impact of depreciation related to this increased capital expenditure over the past couple of years. These investments will continue throughout the year as we approach a record amount of investment for the company, which we believe will create value for both our shareholders and our customers over the long term. As we continue our expansion plans, we remain focused on measuring our performance for customers. The Mastio ratings clearly highlight our improved service profile and our internal service metrics have never been better. Yet we continue to emphasize a customer-first focus with a priority on achieving even higher levels of service. With a focus on our customers in advance of relocating our Laredo facility, we executed a new cross-border agreement with a leading Mexican LTL carrier Fletes, which will allow us to expand our service both north and south bound. Although we did not see the seasonal pickup that we expected, Q1 was nonetheless a record quarter for Saia. The organization delivered a 14.3% increase in revenue to $754.8 million, while we made significant investments in the business and in advance of several openings, we still delivered an 18.9% increase in operating income to $117.9 million. As always, we remain intently focused on the long-term opportunity to enhance our service offering and coverage for our customers while delivering significant value to our shareholders. Our results included relocating 4 facilities in Q1, more significantly, we've already opened 4 new facilities in April alone, and we'll plan to open 2 and relocate an additional facility before the end of the quarter. We probably look to our 100-year history as a foundation for our success. However, as we continue to build a talented and engaged workforce, we're proving that we are not stagnant, but are instead continuing to build a best-in-class organization rooted in this 100-year history that can meet and exceed customer expectations. As always, we remain flexible with the timing of openings and want to be mindful of the natural cyclicality of our business. After Q2, we expect to open as many as 15 additional new locations this year. The majority of these in Q3 covering additional Great Plains locations. We maintain flexibility of these openings as it's critically important that we replicate our service. We may find it necessary to delay or pause the openings whether due to staffing challenges or other uncertainties. At this stage, we are excited on the core competency of opening terminals organically that we have developed over the past 7 years, and we'll continue to follow that blueprint going forward. Establishing a great culture and a terminal is a critical step in making sure that terminal is successful over the long term, and we strive to get that right from day 1 with all new openings. So as we move forward through 2024, we continue to see macro uncertainty. At the same time, we continue to see widespread customer acceptance of Saia's now national network. I should highlight that this is a national network that will be poised to scale as customers seek to grow with a trusted partner as the macro environment becomes more certain. As a result, we are confident in our ability to continue to execute on our plans and will position Saia for long-term success. Before we open the line for questions, I would like to highlight this morning's other Saia press release. Our CFO, Doug Col, has decided it's his time to pursue his next chapter and will be retiring from Saia. As many of you well know, Doug has been in and around the transportation space in a variety of roles, but most significantly with Saia over the past decade. Doug has been a big help with setting up our strategic course in communicating with you on Saia's progress. For those of us that have been fortunate enough to work with Doug on a daily basis, we'll miss his wisdom and wit. I am personally quite grateful for the opportunity to work with him. In time, we'll name Doug's successor, but Doug has built and developed a great team at Saia and will be with us through the year and to help facilitate any transition. With that said, we're now ready to open the line for questions, operator.

Our first question will come from Scott Group from Wolfe Research.

Congrats to you, Doug, on a great career. Maybe let's just start on the monthly tonnage trends and April update. And Doug, maybe it's helpful just given the Q1 revenue, maybe it's helpful to give some revenue thoughts around Q2. And I know you always give some OR thoughts as well. So maybe just get that out of the way.

Thanks for the comments too, Scott. So yes, in March, I think we quoted the March shipments up 16.8% and tonnage was up 5.2%. The months are still reflecting that weight per shipment decline we've been experiencing for the last several months. April so far, we got a few days left here, but April is running up about 17% in terms of per workday shipment growth. That's benefiting a little bit from an easier Good Friday comparison. Good Friday was in April a year ago, and it's not in April this year. So that's given that 17% a little bit of a pickup; it's probably 1% or 2% of benefit because it's an easy comp there. Tonnage per day so far in April are running about 6.5% up. Same thing, a little bit of a benefit because it's an easy comparison with Good Friday not in April this year. So it would be the same thing, 1.5% or 2% probably benefit to that tonnage because we don't have that Good Friday to deal with this April. I think from what we've seen so far in April, the last few days make us feel a little bit better, but we're not going to say that makes a quarter, as we saw in Q1. So we feel a little bit better about what we're seeing lately, but we're not going to say it's a longer-term trend. But based on that, I'd say moving from Q1 to Q2, if we got kind of mid-single-digit revenue growth, I think that would make sense to us. And historically, we usually get better, quite a bit better in Q2 on an operating ratio standpoint; 250 to 300 basis points is probably our history, if you take out the COVID years. But that's not going to probably be gettable this year, though. It's, as Fritz mentioned, a lot of activity so far in preparation of openings, some relocations that have already occurred, more openings to come. So you're going to see some of that cost coming in advance of the revenue, like you already saw in Q1. You'll probably have a depreciation step-up from Q1 to Q2 of another $5 million or so and maybe in the following quarter, you get another little step up before that starts to flatline. So we got depreciation, you do some of the hiring before you open a terminal, things like that. So for us this year, if we could improve 150 to 200 basis points maybe, with mid-single-digit revenue growth, I think we'd consider that progress. And if you did that, if you just pencil that in, the year-over-year comparisons probably end up looking pretty good again if we can hit that. I mean, you'd still be talking about something with a theme on it for revenue growth if we did that year-over-year. And operating income up a little better than that if we hit those goals. So I mean we do that in this environment. I think we knew it was going to be a growth year, a lot of activity, a lot of people. But I'm real pleased with how we manage cost over the last few months. I mean we geared up for bigger volumes in March. And when they didn't come through, when they didn't come through, you're staffed up for it. You're hiring drivers in advance for your seasonal expectations. You're hiring dock workers. And as the volumes didn't come through in March, we did a good job on the cost side, pulling purchased transportation out, things like that, things we could control. So it's good to draw it up in a spreadsheet, but to manage the business, there's the variable change in every day. So I've been pleased, but that's our Q2 outlook. And I'd still, I mean we don't give any guidance beyond that. We won't get into Q3 or Q4 yet. But when we look at the numbers and what we just put up in Q1, we still think 100 to 150 basis points improvement is gettable this year and we'll see what the macro deals us. I mean things could get worse from here or something. But Q1 didn't knock us off a path to improve the OR this year. So that's our view today.

The $150 million to $200 million, that's sequential margin improvement, correct?

Q1 to Q2. That's what looks possible. Again, I got that depreciation step up staring me in the face, and we make these investments and put people in place and train them. And we don't open them until we're ready to go. So that's always fluid, but we're real pleased these first 6 openings this year, we're really pleased that 5 of those are going to be staffed with Saia people and we transfer that culture up there and focus on the employee and our non-union employees and our customer. We want all that stuff to be consistent. So we're real pleased we're going to be able to open most of them with Saia people and spread that customer focus and employee message into the new terminals. So it's going well. It's just a kind of a shaky macro still on the freight side.

And then maybe just lastly, maybe just talk about pricing. I don't know if you gave the renewals number, maybe share that and just overall, is pricing getting harder or not?

That's an ongoing pricing environment that is something we're intently focused on. Our contractual renewals in the quarter were 9.2%, which we're pleased with that number. But we're not satisfied with that number, meaning that we've got the service levels that we're providing deserved to be compensated. And so that is an ongoing focus as we see opportunities or issues with the mix of business that we have. We continue, we're very conscious of that and pursue that. We haven't, certainly customers don't like a rate increase, but I think you're in a a lot stronger position to get the rate increase when you're in a position to point to the service levels that the customers are getting and an expanding network.

Our next question comes from Amit Mehrotra from Deutsche Bank.

Doug, congrats. It's been a remarkable career. So I wish you the best and whatever you're going to do down the road. I wanted to ask maybe a couple of quick questions. The first one you guys opened up a couple of important facilities recently, Garland and Trenton. I know there's a couple other more, but those are kind of, I think, probably more important or bigger ones. Fritz, can you just — how have those gone? I mean when you opened up the one in Buford, middle of last year, obviously had a very, very quick positive impact. Can you just talk about what you're seeing from those 2 terminals in terms of bills per day or however you want to talk about what benefits they're giving you on the network?

Yes. Thanks, Amit. Yes, you've highlighted 2 important ones, and we've got some more important facilities we're opening this quarter as well. Trenton, it's early, but it's certainly making a positive impact for us, particularly on the service side. We were trying to service that market from New York and Philadelphia, both. So that was expensive, and we weren't as responsive for our customers as we'd like to be. Early indications out of the gate indicate that's going to be a great investment for us. So we're really pleased. And it's important to note, that is being led by an experienced Saia terminal manager from the start. So when we move into that terminal, we were ready to go with replicating Saia culture and Saia service. So that's really exciting; early results would indicate that as well. The second big facility that we opened was in the Dallas metroplex, which is arguably Saia's strongest market. We opened a facility there that also is staffed by long-time Saia experienced people. So they know exactly what it means to provide Saia service, so we're still thrilled with the early results. I need to let it develop before I give you any better. I mean, we're only a couple of weeks into this, but customer acceptance, particularly on the Garland facility because of its proximity to some important accounts for us has been great to see. You're easy to do business with and you do it well, and they're talking to somebody that they've historically worked with, that's a great opportunity for us. So we're thrilled with both of those investments.

Okay. And then just for my follow-up question, I wanted to double-click on the pricing discussions and really focusing on revenue per shipment ex-fuel because the story has been over the last 6, 7 months that there's a big pricing opportunity. And obviously, you're going to lean into the service and sell the service. But when I look at revenue per shipment ex-fuel, that was actually down sequentially versus the fourth quarter, which is somewhat surprising, but then profit per shipment was up nicely as well. So it doesn't feel like there's a negative read on pricing when I look at kind of what's underneath the surface. But can you just help us understand what's happening on revenue per bill ex-fuel? And give us a little bit of comfort that the strategy around leaning into price is actually working despite this key metric that's moving in the wrong direction?

Yes. Fritz, I'll probably defer to you on this one. Revenue per shipment despite the lighter weight is still up year-over-year. The sequential trend, I think it's primarily explained by mix. The direction matters; the freight can weigh the same per pallet and the length of haul can be the same. But our national account customers are really sophisticated, and they optimize the use of the carriers in their Rolodex. A shipment from Atlanta to Miami is one rate and the same shipment, Miami back to Atlanta can be a different rate, but you highlighted it. If I'm getting some economies on cost side, when I go to pick up with one of these larger accounts instead of getting 2 or 3 bills, I'm getting 5 or 6. Or maybe now that I've got more trailers in my fleet, if I can leave the national account customer trailer for the day and they give me 10 shipments, I get really good cost economies there. So revenue per shipment was down sequentially Q4 to Q1, but the cost per shipment was down more. So my margin picked up. So we're managing through it. We are not going to sit on our hands. And just like you saw in Q4, we pulled a lot of discussions forward, and we'll do that again this quarter. Just because we talked in the fourth quarter, if we're looking at that business, and it's not working for us, we'll go back and try to get some more rate. But I said on the last call, I thought capacity has come out of our industry and with the focus on profitability, top to bottom across our industry, we're really seeing it from our major competitors. I think everyone in our view is still holding the line on pricing. But if you give us a stronger macro backdrop, I still say, and I've been watching this stuff a long time, you're going to see another leg up in this pricing. It's not getting any cheaper to do what all of us do. Ask our truckload friends. It's hard to go get price sometimes. And when the freight picks up, we'll all get some more price.

And I would add a couple of points, Amit. If you go back to when the disruption really started last summer, we talked a lot about how we would see that mix of freight bounce around a little bit from competitor to competitor as that got absorbed by the industry. I think you're seeing a little bit of that. You're also seeing an intense focus by us to continue to deliver on service and pricing at the same time. That service isn't inexpensive to deliver. So we make sure we go after that. But there's a nuance here that hopefully doesn't get lost. As Saia develops network maturity, we start getting some of the scale and cost leverage that you saw from Q4 to Q1. You noted the cost per shipment changes that are unique to our situation as we develop the maturity in our business. We have an opportunity to build route density, build density around the line haul network, and there's some pretty good execution underneath that in a turbulent environment. Those are important value creators over time.

Our next question comes from Bruce Chan from Stifel.

This is Matt Milask, covering for Bruce. We'd echo congratulations to Doug as well. Curious to get your thoughts on the overall competitive environment within the LTL industry and sort of how you think that's evolving earlier this year.

I don't think we're seeing any change. We're not really seeing competitors' results who have put up numbers so far. A lot of consolidation, right? There's a lot of capacity that's on the sidelines because there hasn’t been an interest in it since the Yellow auction, and there's a lot of capacity that has been acquired. It's kind of mothballed until people are ready to open terminals. So I don't think we're seeing any change other than as Fritz said, when freight trends are softer, the shippers have options. They aren't as stressed because their need isn't as great. But if demand picks up seasonally or the macro tailwind develops, then it becomes a little tighter and they want commitments and they want really high service standards. Until we get a little bit of that, you'll continue to see people trying this carrier for a while. So it works, try this carrier. I think that's probably going on, but I don't think there's competitive actions going on out there that are negative.

Fair enough. And secondly, how are you thinking about shipment growth in the back half of this year, really as you start to anniversary some of the Yellow share gains?

Well, the comps are going to step up and start to get difficult for all of us in July, especially in August and then after that. But I have got that idiosyncratic growth from these new terminal openings. We're putting up terminals in markets we haven't been before, and folks like our service, and they've used us in other parts of the country, and they hear about the new service options. That will be a little tailwind for us. But in terms of forecasting a back half and what the macro is going to look like, we're not going to take our shot at that. Others have tried and we're not ready to call a turn or anything like that.

We have shown we know how to execute on an opening and deliver the service. We're going to get growth out of these new facilities. The question is what the legacy growth might look like. We did not see what we thought in the first quarter, but at the same time, we've delivered solid results given that core execution despite the challenges in the marketplace. I feel pretty good about the rest of the year in our core execution.

Our next question comes from Tom Wadewitz from UBS.

Yes. And Doug, congratulations to you as well. You've been obviously one of the key leaders in that great growth story with Saia over the years. So congratulations to you. Let's see, I wanted to get your thoughts on how you think about the pace of that capacity opening. It sounds like a lot of it's kind of already set up with people. How much of that would you ease up on if you have a flat freight market, which seems to be what you're seeing and maybe a little less than normal seasonality? Do you ease up on some of that that might be in the second half? And does that affect what the margin outlook is? Or is it just kind of like maybe open it, but you staff it with fewer people. How do we think about that dynamic in pace of openings? And also how the margin would be affected if you do ease up on the pace of openings, looking out beyond second quarter?

Thanks, Tom. I think the key thing for all of these openings, there was never an intent for Saia to open these as to impact 2024 in a single quarter. We view these as long-term investments, multiyear return, 10-year sort of horizon. The Trenton and Garland facilities that we opened this quarter are ones that are simply in markets that we already are serving to some extent where we were doing it inefficiently. So those are ones where the cadence of opening made sense to us because, first of all, it's an immediate service lift for our customers. There's going to be some incremental business in there, and there's also going to be little cost savings. Those are big facilities for us in kind of our opening cadence. The Great Plains facilities, we'll open the remaining ones in July, August and September. We'll do that purposely because for us, there's some efficiency in opening those near each other in terms of timing to minimize the inefficiency of having part of the line haul network put together. We're going to go ahead with those. There is a customer demand for all those. Missoula, Montana is an opening that is not material for the entire Saia business, but it has far exceeded our initial expectations. Customers that know what they're experiencing with us like dealing with Saia, and we're really pleased with the early results there. So we look at that and say it's worthwhile to go after the remaining Great Plains states. These are small markets, but customers value that consistent service they maybe weren't getting before. That makes a lot of sense for us to open up. They may not be a big lift on the OR in the balance of the year, but I think they are really important investments to make. We can minimize the cost to them. At the same time, if we're focused on the customer and the long-term opportunity in this business, those are the investments we need to be making. So we're going to continue on that pace. We'll look for places that minimize inefficiency or embedded cost that we could avoid, absolutely. But there's too much value in these not to continue to pursue them.

So that having been said, if you assumed a flat freight market, how much would the service center openings give you on shipments per day or tonnage? Is it like a couple of points, just thinking on your...?

It's tough to say. Missoula, Montana is not as big as Trenton, New Jersey or Garland for that matter. So I think that's positive for us in the balance of the year. I'm not in a position to really call the macro freight market. I think it's probably mixed. But Saia's idiosyncratic story is important to remember. We've shown what we can do with these openings, and we've been able to execute in market even in slower times.

Our next question comes from Eric Morgan from Barclays.

Congrats to Doug as well. I guess I wanted to ask another on volumes coming in below expectations in the quarter. Just given the pretty strong renewals number you gave earlier, would you say your push on price this year is having any kind of outsized impact there? Or is it really just more of a broader market demand story?

I think it's probably the broader market. Following Saia over time, we're focused on generating value to our customers and generating returns for our shareholders. We don't stay fixated on volume numbers. We stay fixated on making sure we meet those first two expectations. We'll continue to push the service level and our expansion because there are incremental opportunities, but that only works if we keep working on pricing and mix of business, and we're committed to that.

Appreciate that. And just a quick follow-up on revenue per shipment. Do you think that 3% to 4% is still a good benchmark for the full year ex-fuel? Or is some of the mix changes going to have an impact on that?

After what we saw in Q1, without a crystal ball on the macro, I'm not as confident in that. But what I did like is the spread improvement. I didn't get as much revenue per shipment as I had hoped; it's a mix issue. We'll work on pricing at every turn. If a customer account is not operating profitably, we'll pull that discussion to the table right now. We're doing a good job managing the cost side. That's why I was able to get the margin pickup, and that's why I think we can still get 100 to 150 basis points for the full year. There are moving parts here. If we get some economies on the cost side, that works for us on the margin side. We're growing the business and we're growing profitability more than that. I think that's what you want in the business. On the volume side, March didn't seem to come together like most expected. But we still had shipment growth in the quarter, up 15.7%. I don't know how many others are doing that. So we kind of think we're on the right track, and we'll work through this cyclicality inherent in our business.

Our next question comes from Jordan Alliger from Goldman Sachs.

Just a quick question. Curious with the expansion plans that you have at this point. What do you see in terms of the ability to get the folks that you need both from a driver perspective and terminal perspective? And is there much cost inflation among in terms of attracting these folks?

One of the exciting things about what we've got going at Saia is that as we add these facilities and this coverage footprint, we've always felt really good about our team. As we add new facilities, we've been able to staff key leadership roles in those facilities from the experienced part of our company. That's helped set the tone and the culture. When recruiting drivers or other staff to fill these facilities, the folks doing the recruiting know what Saia is and what our culture is. We have to stay market competitive on pay and benefits. A growing company, great place to work, great culture are recruiting advantages. We've had success staffing people that understand our core values. So we've been pleased with what we've been able to do on that front. That's an important part of our growth story going forward.

Our next question comes from Jonathan Chappell from Evercore ISI.

So you took on a lot of new customers over the last 12 months, obviously, with the type of shipment growth you've been putting up. As it comes around to these pricing discussions with them, obviously, there's a vast array of different customers and different types of freight. How have these customers been receptive to some of the pricing discussions to try to get the value for your service?

Jonathan, we'll double up on this answer. One of the things we benefited from early with the disruption is that in many cases, we had shared some of the national account customers with Yellow. They were people that were familiar with us. We picked up some pickup economies as we picked up that new business. As we've developed relationships with these customers, we have a better understanding of freight mix and impacts. We've been focused in Q3, Q4 and into Q1 around continued work on pricing to make sure customers that understand and value the service they're getting are being appropriately compensated. We've cycled through some customers who decided to pursue other options. So you see a bit of that. But you also see traction: customers are starting to value what they're getting from us and there's a bit of stickiness. That speaks to long-term opportunity for us.

Okay. And then just a follow-up, Doug, I don't want to put a pin on this, but you're keeping the full year OR guide; first quarter was aligned and so your track, like you said, but it sounds like second quarter is going to be about 100 basis points lower than typical seasonality. Does that mean that we can be better than seasonality in the back half of the year? Is this a front-end loading of cost type thing in the second quarter? I mean you know how this business works, people focus on the real short term here. But if it doesn't throw the track off, even if the second quarter is maybe a little lower starting point, I guess that's a key takeaway we'd like to hear.

Q1 on the OR side was in the range. We all want to be better without a strong March. We didn't get there, but Q1 was kind of in the range. Yes, this would be below normal historic seasonality, but the momentum on the volume side and start to cover some of these fixed costs as shipments grow and these terminals were opening today. We open them, I have all the costs in advance of the opening; I had all the costs on day 1, and I have zero revenue. As they build momentum throughout the year, we absolutely expect that to pick up in Q2, Q3 and Q4 after the opening. So there's some of that.

You have to think about it also. We've highlighted we're opening Trenton, Garland, Laredo in June. We've got a block of Great Plains facilities we're going to open; that freight often gets handed off. That freight becomes 100% Saia revenue. That's a pickup into the second half of the year. We know what we're going to get service-wise when it travels on our equipment 100% of the time. I think that's a real value opportunity for our customers and from a revenue perspective for Saia.

Our next question comes from Daniel Imbro from Stephens.

Doug, congrats on the retirement. I want to start on the freight mix. When we think about the density you've added and the capacity you're still adding, how much are you leaning on third parties or brokers to find freight? And is that mix impacting reported revenue per shipment or yield metrics? And if so, how long would it take to transition that towards first-party freight as you stay in those new markets?

Certainly, in some new markets, broker business is helpful to get started. But a lot of what's going to fuel growth in the markets we're growing in are customers we're already doing business with. That's what's exciting. If you can go to a customer and offer full Great Plains coverage, those are not the biggest markets, but if we go do a pickup in Dallas and we can cover the Great Plains and also go to Trenton and Laredo and maybe to Mexico if needed, you're now an opportunity to move up on the priority list with that customer. You're a much more strategic LTL partner because we can do more for them and we've proven they can count on us to replicate service. The exciting part is further penetration with customers that already know who we are, and customers that held back doing business with us because they didn't have coverage now may work with us.

That's helpful. And then for a longer-term one. On the industry outlook, the market is soft, obviously Yellow, headline growth moderate, you mentioned you feel good about your ability to grow tonnage and price. How do you think the industry will respond? Is there a risk others may get more price competitive as their headline growth slows? And how, if at all, does lapping Yellow change the growth trajectory?

If you look across the industry, I think there are a couple of fundamentals. One is that underlying the business, it's inflationary: driver costs, employee costs, equipment, real estate — all inflationary. Another fundamental is that more volume at a lower price does not create incremental profitability. I think there's discipline across the landscape. We feel confident in what we control — providing service to customers — which is a differentiator for us. I don't think a price-led concession strategy is a value driver for anyone in the space, so I expect discipline to remain.

Our next question comes from Brian Ossenbeck from JPMorgan.

Doug, congratulations and all the best with whatever is up next for you. Just wanted to ask a bit about the broader competitive dynamic. Obviously, the truckload market and the freight market generally has been lower for longer. The disruption of Yellow helped LTL. Do you think the truckload market has encroached a bit more on core LTL business? Therefore, when that tightens up, might you get a better snapback than you would otherwise think? Is that specific to your network that you might see any leading indicators as we progress through the rest of the year?

Some of our competitors speak to this. Our sophisticated national account shippers may figure out ways to move more of their product on truckload to take advantage of the favorable truckload rate environment. But I don't think there's a lot of multi-stop truckload going on. It's different equipment. A truckload driver is not typically used to handling palletized freight; LTL requires different assets, dock workforce and terminal network. The shipper might be consolidating more onto truckload where it makes sense, and as that tightens up, we could benefit. A better freight backdrop is good for all of us. The industrial side has been weaker, and if that changes, we all benefit.

Understood. Follow-up on Mexico and the cross-border business. Maybe you can elaborate on what that partnership does for you, and in the longer term does that help fit with the relocation of Laredo and how important is that partnership over the next couple of years?

We're thrilled with this partnership. Depending on your view of nearshoring or reshoring, cross-border into and out of Mexico is continuing to develop. We're pleased to partner with a high-quality Mexican carrier that can provide seamless north- and southbound service. Combined with our Laredo investment, this is an interesting opportunity. For a customer, they can see that we're a carrier that can provide seamless service at a high quality. That makes someone's supply chain more efficient and is a good place for Saia to play.

Our next question comes from Ravi Shanker from Morgan Stanley.

I appreciate the message that it's going to take some time to add the resources and bring the new facilities on and that's going to be a drag to operating leverage in the near term. But is there a risk that even if the cycle kicks in later on, the shock of losing Yellow is kind of lost a little bit by the time the industry ramps up its capacity and shippers may be less willing to take big price increases?

There's always a risk. Saia's focus has been around quality of service and making sure we are paid at market levels. As we become a more strategic national competitor, there's still an opportunity to be paid at market. I think the idiosyncratic value driver for Saia shareholders remains. As for the industry absorbing Yellow's assets, it remains to be seen if all those assets come back; I'm not sure they will. The opportunity remains constructive for us.

Perfect. And maybe as a follow-up on pricing. Are you hearing of any rollbacks by peers? Are these price increases sticking, or are customers more willing to accept them in the new environment?

There's not going to be a customer that likes rate increases. What's critically important is if we can maintain service levels that justify the rate increase, that's where we're most successful. If you look across the industry, people are trying to adopt similar strategies because more volume at a lower rate doesn't make sense. The economics don't work. I think the industry continues to be disciplined around this. We are, and our service levels justify it.

Our next question comes from Tyler Brown from Raymond James.

Fritz, can we just come back to employees. I'm curious how frontline turnover is trending? I'm assuming it is easing. My bigger question is how do you feel about your training programs that are in place? How concerned are you about productivity or service taking a step back, particularly on the dock as you go through this big season of growth?

We do a lot around employee retention efforts and are very focused on employee engagement scores. Our engagement score measured last fall was the highest it's been at Saia ever. We've seen turnover rates at the dock and driver level level out and actually come down from periods of a year or two ago when turnover was higher. That's been good. In certain spots you do see some churn in dock roles because we're recruiting people new to the industry. One of the things we've done is double down on leadership training for our frontline supervisors. Our most important asset is people. We're focused on keeping engagement high and lowering turnover because that helps drive consistency around product, service and safety. It also gives us a pipeline of frontline leaders who help staff new facilities and maintain culture. We pay attention to this on a daily basis because it's that important.

No, that's great. And then back to Mexico. You struck a similar interline deal in Canada a few years back, if I recall. Curious how big that lane is today. Is there any reason the Mexico lane couldn't be equally, if not larger?

The opportunity cross-border into and out of Mexico over time is likely to be stronger than Canada, not that Canada isn't important. Our success in Canada was predicated on transparency to the customer and a consistent experience. We're going to do the same thing in Mexico. With nearshoring, the opportunity in Mexico is probably materially different over time than into Canada because of the state of the supply chain. That's why we're excited about partnering with an experienced Mexican carrier with high-quality systems and focus on service; it's a strong match.

Our next question comes from Bascome Majors from Susquehanna.

Doug, could you give us an update on visible cost cadence since the last call on D&A and interest expense now that you're getting further on the terminal openings? And taking a step back, why is now the time to move on with this transformational 12 to 18 months ahead for the company? Fritz, maybe add some color on the Board's timeline and thinking on the kind of person you want to hire to lead the financial side of the business going forward?

I'll give some modeling color. On the D&A side, Q1 to Q2 we've already taken delivery of about 3,000 units if you include trailers, tractors and forklifts year-to-date; we've got another step-up coming. Q1 to Q2, a 10% step-up in depreciation is probably the right way to think about it, and probably another smaller step up, maybe 5% or so in Q3 before it starts to slow. Also, for the first time in a long time, instead of interest income on cash, we're going to use our revolver a little bit this year and have some debt for the first time in a while. So there'll be an interest component to model. I'm thinking probably $4.5 million to $5 million in interest in the second quarter, then it should trend down a little bit after that due to seasonally stronger cash flow later in the year. Claims and insurance is volatile; use a trailing four quarters plus inflation as a model. There's cost inflation in the business: wage inflation and health care costs continue despite softer demand. Why now? We've been looking at the numbers and we see how building out the map like our best-performing regions drives sub-80 operating ratios. In the first quarter, a seasonally slower quarter with front-loaded expenses for growth, a handful of regions operated sub-80. Those regions share common denominators: great coverage, an established brand, and competitive footprint. We get more share than our headline industry share. Our goal is to build more of the map to look like those regions and push the overall OR lower into the 70s. That's why we're making these investments.

To add to Doug's comment, we've shown we can open the last 50 terminals and know how to add a terminal to a network and approach a market. There's a lot of value to create for customers and for Saia as we build this out. All terminals in our pipeline this year are ones we think have a decade of opportunity. We're excited about that.

Our next question comes from Jason Seidl from TD Cowen.

Doug, congratulations. You're not much older than me, so I'm very jealous you're talking about retirement. I wanted to circle back on a few things. One, there's a lot of expansion going on here. How should we think about looking out to 2025 in terms of the pace of expansion with more openings? And Doug, I wanted to circle back a little bit to the truckload marketplace. It seems like you don't think the truckload marketplace has had a significant impact on the LTL space in either tonnage or pricing. I just want to make sure I got your answer correct.

That's one person's opinion. I think it's a different business than ours. Shippers have technical transportation management groups; if they're moving more on truckload before it gets to a palletized move, that could be happening. But I don't think there's a lot of multi-stop truckload activity that impacts LTL on a broad basis. The truckload driver and equipment are different. Shippers might be taking advantage of favorable TL rates to consolidate more, but that's my view.

On the expansion question: a year ago post-Yellow auction we would have been telling you about 10 to 15 terminals a year from our real estate pipeline because we've spent a lot of time developing core competency around organic growth. Then we added in the 28 from the Yellow auction. We're going to open a number of them this year and more next year. Next year it could be 10, it could be 15 openings; we'll see how that goes. The pipeline is multiyear. Once we get through the end of this year, I don't think we'll have the exact footprint we ultimately need; you'll see us continue to replace and upsize facilities as our network matures and grows. There's opportunity next year around growing facilities.

Our next question comes from Ken Hoexter from Bank of America.

Doug, congratulations on your retirement. Fritz, can you talk about customer engagement in the quarter? I want to understand what happened on the volume side. Was it due to addition of large enterprise customers or Yellow business that kind of came back in and then you re-priced and it fell away? I'm trying to decipher the volume weakness versus what we see in parts of the market.

The macro situation matters. The Q1 GDP report at 1.6% is a mixed, somewhat soft macro environment, which creates overhang for the industry. I think you see that in other reports. For Saia specifically, our geographic expansion initiatives have idiosyncratic impacts. If the macro were stronger, we'd have seen a bit more lift in Q1. Despite the limited macro, our performance was good, reflecting our idiosyncratic story and ability to deliver service. The takeaway is when the macro firms up, Saia will be well positioned to take advantage of that because we're executing well now.

So to clarify, it's not that what you took on was Yellow freight or Amazon freight and you had to reprice it because volumes were weak, right?

No. We did pick up some Yellow freight because of shared national accounts, and in Q4 we pulled some contracts forward. We experienced mix changes from Q4 to Q1, and we continue to work to get the pricing right. It's part of the underlying business we deal with daily.

All right. And then as a follow-up, thoughts on claims ratio. I don't think you touched that in the release. Has claims tightening flattened out now? Or is it still volatile given some of these repricings and contract revisits?

It's ongoing. As we grow and take on new customers or get a different mix of business, we need to reprice and get the book of business and margins right. You'll continue to see that from us going forward.

The claims ratio has been hanging in there around 0.56% to 0.6% for a while, showing very consistent service even with new team members. We look forward to rolling that out in more markets.

Our next question comes from Stephanie Moore from Jefferies.

If you take a step back, how would you compare 2024 in your expansion plan to another year in the last seven that you've been on a similar aggressive capacity expansion plan? Whether it's by terminals or door count, how does it compare? I'd love your perspective. Is there a similar year that you can point to where you're making these investments and ultimately see this loaded springboard when the market eventually turns?

Every year is a little different. What's exciting about this year is the range of opportunities. We have market expansions like Trenton, Laredo, Owatonna, Duluth, and openings that turn Minnesota from a line-of-the-line state to a real market for us in less than a year. The openings this year are about the customer and providing additional service. We also have big strategic facilities. Together, they allow us to tell customers we can go anywhere other national players can go and deliver service. Organic expansion is in our wheelhouse. We have an established culture and we know how to replicate it. I'm excited about this year's openings and the ones next year as well.

Got it. It reminds me of 2019 where you were investing heavily into a not-the-best market, and then you saw recovery. I appreciate the comment.

I like the idea of having 210 to 215 terminals teed up, ready to go, with an established team. When macro certainty improves, that could be a springboard for Saia.

We have no further questions. I would like to turn the call back over to Saia's President and Chief Executive Officer, Fritz Holzgrefe for closing remarks.

Thank you. And thank you, everybody that's called in, and we appreciate the opportunity to talk about the great things happening at Saia. I really look forward to the next years and continuing to deliver results. So thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.