Good morning, everyone, and thank you for being here. My name is Abby, and I will be your conference operator today. I would like to welcome you to the Saia, Inc. Second Quarter 2024 Earnings Conference Call. I will now turn the conference over to Mr. Matt Batteh, Executive Vice President and Chief Financial Officer. You may begin.

Thank you, Abby. Good morning, everyone. Welcome to Saia's second 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 will now turn the call over to Fritz for some opening comments.

Good morning, and thank you for joining us to discuss Saia's second quarter results. While underlying macro trends remain tepid in our view, our year-over-year results in the second quarter continue to reflect the growth experienced since last summer. In the quarter, we averaged approximately 36,400 shipments per day compared to approximately 31,000 per day last year, an increase of 18%. During the quarter, we opened six new terminals and relocated two others, continuing to execute our long-term strategy of improving our service and value proposition to the customer. While we are experiencing the impact of costs related to opening these new and relocated terminals, we continue to see the long-term value in our strategy of building density and positioning ourselves to better serve our customers. The opening of our fourth terminal in the Dallas metroplex helps further build density in the market and is strategically positioned near some of our core customers. We've already seen the positive impact of this new facility as the proximity to key customers has allowed us to provide unique solutions. The quarter was capped by the opening of our new Owatonna, Minnesota terminal, which marked the 200th facility in our network. Relocations are also an important part of the story, as these relocated terminals often offer us multiple benefits, including a more strategic position in the market and added capacity to better serve both new and existing customers. During the quarter, we relocated our Laredo, Texas facility, which resulted in a significant upgrade to our capacity in one of the most important freight corridors into the country. I was also pleased to see that with these new openings, we have maintained our focus on customer service and each of our key service indicators improved in the quarter. Our second quarter revenue of $823 million increased from last year's second quarter by 18.5%, a record for any second quarter in our company's history. Yield or revenue per hundredweight, excluding fuel surcharge, increased 8.7% reflecting a constructive pricing backdrop and the impact of changes in our mix of business. Revenue per shipment, excluding fuel surcharge, increased 1% despite a headwind from weight per shipment, which was down 7.1% in the quarter and length of haul, which was also down modestly. Operating income of $137.6 million was 14.4% above 2023. Our second quarter operating ratio of 83.3% deteriorated 60 basis points from last year's 82.7%. The results were impacted by the following: post last summer's industry disruption, we’ve described the ongoing changes in freight mix and patterns as we see the market adjust to absorb this disruption. Q2 is typically the industry's strongest quarter and the first peak quarter since last summer's events. Over the last 12-month period, we've focused on successfully building our network. As we review our growth to date, we see proportionally more national account and retail-related freight with a shorter length of haul in one- and two-day markets. These customers value our emerging network and consistent high service levels. However, the freight characteristics are notably different than we have traditionally seen. We've seen this profile of freight seasonally increase from Q1 to a larger relative proportion of our business compared to our historical mix. At the same time, we did not see the same seasonal increase in our traditional industrial freight. We estimate that this mix impact created a margin headwind for the quarter of roughly 150 to 200 basis points compared to last year. The margin headwinds created by the characteristics of the onboard freight only further emphasize our pricing initiatives and mix management focus as seen in our contractual renewals, which remained strong at 8.4%. We're very pleased with the progress of our new terminal openings. Customer acceptance has been high and we've seen early success in all our new facilities. However, we've discussed previously; new terminals are investments that require extensive recruiting, onboarding and training to achieve success. The new facilities that we've opened in the last three years collectively operated at approximately 95% operating ratio and have been impacted by the mix of business trends that we've seen for our overall portfolio. The terminals opened in Q2 operated at a loss in total. But much like the facilities that we've opened two and three years ago, we expect to see continued progress in overall performance. While our expectations for these facilities were going to be neutral in the period, our increased investments in onboarding and training led to these facilities being a headwind in the quarter. However, the value of the expanding network can really be seen in the terminals that have been open longer than three years as they operated at roughly 82.2% operating ratio in the second quarter despite the unfavorable mix of business. While incurring costs ahead of terminal openings and subsequent revenue generation is typical, we have doubled down our efforts to enhance our customer value proposition. We've enhanced the training requirements for our team members in both new and legacy terminals, which is critical to building the Saia culture in each market. In total, this investment in new facilities less than three years old created roughly 130 basis point headwind for the quarter compared to last year. Our teams are committed to accomplishing our growth strategy 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 we saw that focus at the forefront of the new openings and relocations during the second quarter. I'll now turn the call over to Matt for more details about our second quarter results.

Thanks, Fritz. As mentioned, second quarter revenue increased by $128.6 million to $823.2 million. Yield, excluding fuel surcharge, improved by 8.7%, and yield increased by 8%, including fuel surcharge. Fuel surcharge increased by 14.3% and was 15.4% of total revenue compared to 15.9% a year ago. Revenue per shipment excluding fuel surcharge increased 1% to $290.72 compared to $287.90 in the second quarter of 2023. Tonnage increased 9.7%, attributable to an 18.1% shipment increase, partially offset by a 7.1% decrease in our average weight per shipment. Length of haul decreased 0.4% to 888 miles. Shifting to the expense side for a few key items to note in the quarter: Salaries, wages and benefits increased 19.4%, which is primarily driven by a combination of our employee headcount growth of approximately 19.1% year-over-year and the result of our July 2023 wage increase, which averaged approximately 4.1%. The growth in headcount is related to the increase in volume compared to prior year, as well as the opening of eight new facilities in the past 12 months. In addition, other employee-related costs increased, including additional training for onboarded team members and increased workers' compensation expense. Purchased transportation expense, including both non-asset truckload volume and LTL purchased transportation miles, increased by 22.7% compared to the second quarter last year and was 7.4% of total revenue compared to 7.2% in the second quarter of 2023. Truck and rail PT miles combined were 12.9% of our total linehaul miles in the quarter. Fuel expense increased by 11% in the quarter, while company linehaul miles increased 10.8%. The fuel expense was a result of increased shipments, which was partially offset by the decreased cost of diesel fuel compared to the prior year. Claims and insurance expense increased by 11% year-over-year and was up 8% or $1.4 million sequentially from the first quarter of 2024. The increase compared to the second quarter of 2023 was primarily due to increased claims activity and development of open cases. Depreciation expense of $52.5 million in the quarter was 17.6% higher year-over-year, primarily due to ongoing investments in revenue equipment, real estate and technology. Total operating expenses increased by 19.4% in the quarter, and with the year-over-year revenue increase of 18.5%, our operating ratio deteriorated to 83.3% compared to 82.7% a year ago. Despite the headwinds from costs associated with new openings, training and mix of business shifts, I was pleased to see our team execute from a cost and efficiency perspective. Cost per shipment was up 1.1% year-over-year and down 2.5% sequentially from Q1, highlighting the hard work of our teams in a challenging environment. Our tax rate for the second quarter was 24.4% compared to 24.7% in the second quarter last year, and our diluted earnings per share were $3.83 compared to $3.42 in the second quarter a year ago. I will now turn the call back over to Fritz for some closing comments.

Thanks, Matt. As we continue to celebrate our 100th year of business, I was pleased with our ability to demonstrate our customer-first approach to both new and existing customers in our recently opened terminals and across the network. Every new opening is an opportunity to better position ourselves to provide further value to our existing customers and develop relationships with new customers. At this point, it is critically important that we maintain focus on Saia's core objectives. Our team is focused on the customer and a long-term value opportunity to provide an industry-leading service. This focus requires an investment in our people, which is core to the strategy. The facility footprint that we're adding and expanding is not an investment in Q2 or frankly in 2024. These are investments that we expect will create value for our customers and shareholders for years to come. While the new terminals are a drag on margins in the near term, these investments in service and capacity are critical to creating long-term value for both customers and shareholders. While the costs associated with the new openings are more pronounced in some of the smaller and less dense markets, having a comparable footprint to our peers is critical to our overall value proposition. Every new opening moves us closer to the customer and provides us an opportunity to better support their success while creating long-term value in our core business. While the macro backdrop remains uncertain, we believe our operating trends support the continued execution of our long-term growth strategy. Earlier this week, we opened facilities in Stockton, California and Davenport, Iowa, further expanding our coverage and service offerings. Our terminal opening calendar remains robust for the remainder of the year, and we'll open an additional nine new facilities in Q3 and potentially up to another four in Q4. We began our organic expansion journey in 2017 and have added 50 facilities to date while creating value for our customers and our shareholders alike. 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. We remain focused on measuring our performance for customers and onboarding team members that reinforce our great culture as we continue to execute our growth strategy. We're now ready to open the line for questions, operator.

And your first question comes from Ken Hoexter with Bank of America. Your line is open.

Hey, great. Good morning. Just as you now face tougher comps, I guess, going into the post-Yellow environment, given the mix shifts you're talking about, can you talk about your kind of thoughts on how you see sequential operating ratio play out? How you think you've always given kind of good targets there? How you're seeing the revenue per hundredweight, which declined from 1Q to 2Q? How that progresses, particularly given the mix shifts? Thanks.

Sure. I'll start, Ken. I mean if you look at Q2 to Q3, historically, it deteriorates typically 150 basis points or so. I think for this year, a range of 100 to 200 basis points deterioration probably fits with the two facilities that we opened plus another nine to go in the quarter, a relocation in all those pieces going on with the uncertain backdrop. I think that's probably a fair range. I'll let Fritz talk a little bit about the mix standpoint. But from our view in the OR range, we hope it ends on the lower end of that, but a wider range just given everything going on feels appropriate.

I think it's really important to emphasize that from Q1 to Q2, we saw an impact from a mix of business perspective. This mix refers to the types of freight that we're handling and the profile of that freight, which was a challenge in Q2. We don't expect that to improve in Q3. Our focus is firmly on pricing and margin. The reality is that we're not in the business to chase volume; our goal is to enhance profitability while still providing value to customers. While we don't anticipate an improvement in that trend, it could change if the industrial economy sees a pickup, which would benefit us. We believe we will be in a strong position with the new facilities online when that occurs.

And does that put your full year, I guess, changes the shape of that full year of $100 million, $150 improvement for the year?

It does. I mean I think we'll see. Matt gave the guide for Q3. And I think for the full year number, I think we're focused on execution, get the facilities open, improve operating income year-over-year, and we'll be better positioned to see what this mix impact has through the quarter and kind of see how Q3 unfolds.

And how about on the yield side, right? Just the same discussion on sequential change and a permanent side, I guess, of this mix shift?

Yes. I mean we can continue to see a little bit of volatility in this. You heard us from the very beginning of the disruption that our view was it took a year or maybe more for all of this freight to find a more permanent home, you go through a full bid season and bid cycle with these. So our view of that remains is that we see customers moving around a little bit when we give rate increases. We are pleased with our 8.4% contractual renewal number and those that are challenging from a mix standpoint are seeing an increase above that average. But in an environment where there may be more options, you have some customers that may try a different carrier. But we're focused on the same thing. You may see a little bit of movement in that just as we continue to work through the mix, but that's not any different than where we felt before and just that longer-term view of where this finds a permanent home.

Thanks for the time, Matt, Fritz. Appreciate it.

And your next question comes from the line of Daniel Imbro with Stephens. Your line is open.

Hey, good morning, guys. Thanks for taking our questions.

Good morning.

I want to follow up maybe on that last comment. I think we said here 90 days ago, and the previous back half outlook implied better-than-normal seasonality on the OR side just due to terminals ramping and lower start-up costs. I guess, what changed most materially from how you guys thought 2Q would play out that has changed the back half?

Yes. There are two points to consider. At the end of the first quarter, we had an idea of how the business mix would shift from Q1 to Q2, and it unfortunately worsened, resulting in a 50 to 70 basis point impact that we had not anticipated. We had expected that the openings in Q2 would maintain a neutral impact, but they ended up operating at a loss, which affected Q2. For the openings scheduled in this third quarter and into Q4, given this experience and our training efforts along with the varied performance of these facilities, it seems appropriate to adjust our guidance accordingly. These considerations differ from what we initially thought at the start of the year.

And I want to make sure I understood the comment on mix. Is your expectation that, that continues to worsen into the back half or stabilizes from...

We believe it will remain at its current level for now. However, that doesn't mean it won't change. As we all know, this is a dynamic business. The mix of business we experienced in the first quarter has declined a bit in the second quarter, resulting in a different freight profile. This could change again. If the industrial economy rebounds and we observe that in our network, we anticipate that our weight per shipment will likely increase, leading to an improvement in the mix in a different direction. This business is fluid, and we can't rely on today's volume being the same tomorrow.

Great. I appreciate all the color. Best of luck.

And your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Your line is open.

Good morning. Thank you for taking my question. Fritz, I think we kind of appreciate the long-term focus and the investments in the network. But I wanted to ask you if we can reflect a little bit on the question on the freight mix entering the network. Is the belief that kind of this lighter weight carries a similar profit per load characteristics over the medium term and therefore, it is kind of a constructive area of the market to go after? Or is there a framework potentially where this capacity growth versus the volume growth can be optimized in a different way going forward?

Yes, Fadi, that's a good question. I believe there are definitely ways to optimize this. The characteristics of the freight and the revenue profile are certainly different. Similar to what we've done historically, we are focused on ensuring that we have the right pricing in place to reflect our investments. This remains an opportunity for us. If you consider the freight that is more oriented towards national accounts or retail-like, with one- and two-day services, its revenue profile is lower or different from what we have traditionally experienced. This is part of our business dynamics. Moving forward, I don't think this diminishes our long-term value proposition. It impacted the second quarter, but over time, we believe we can build a national network that delivers excellent service while being appropriately compensated for our efforts. We are committed to this and the opportunity remains significant; we just have more work ahead of us.

Okay. If I could, I'd like to ask a quick follow-up. You mentioned that contract pricing for repricing or renewals is over 8%. However, we've observed that both you and some of your competitors are experiencing a more subdued yield compared to historical trends. How would you describe the pricing environment? Are there any competitive pressures in the market that could explain this? It seems there has been an influx of capacity and the market appears to be softening. While many have indicated that pricing is rational, the quarter-over-quarter data suggests we might be hitting a bit of a stagnation.

I believe the pricing environment remains quite rational. Customers may opt for lower-cost alternatives available in the market; for instance, those with different density and lane structures might offer competitive rates compared to Saia. This can happen, and they may still achieve appealing margins. As the industry gradually tightens and customer focus shifts towards providers capable of delivering consistent service levels, we expect to see changes in our business mix over time.

Appreciate it. Thank you.

And your next question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open.

Thank you. Good morning. I wanted to explore the mix dynamic in the second half of the year. You mentioned nine facilities in the third quarter, and it seems like you are guiding towards something close to what we typically see with seasonality. Is there a reason you might not see this mix dynamic continue into the third quarter or potentially change in some way? Do you believe the new facilities coming online may attract a different customer profile?

For clarity, we opened nine additional facilities in the third quarter, with two already opened this week, bringing the total to eleven for Q3. As mentioned earlier, we believe our assumptions remain largely unchanged for now, though they could shift. There are many factors that influence the mix. For example, if we are already servicing a customer's location and add an additional line, we benefit from economies of scale and increased density with that customer. This is different from a scenario where we're handling a new shipment from a brand new client. The mix can vary significantly. We analyze it on a customer-by-customer and facility-by-facility basis, which informs our pricing discussions with customers. Currently, as previously mentioned, we are assuming that conditions will remain stable, although changes could occur if the industrial environment improves, potentially leading to an increase in weight per shipment. As of now, we are not implementing any significant changes.

Okay, that's helpful clarity. I appreciate that. Could we discuss how things are trending in July regarding both the volume and your revenue per shipment? Based on your previous comment about the business profile, are you seeing stability in revenue per shipment for July? Has there been any change? I'd like to get a sense of how that is developing.

Yes. I'll go ahead and give April, May and June by month, just this hasn't been asked yet. So April shipments per day up 18%, tonnage per day up 7.6%. May shipments up 18.6%, tonnage per day up 9.8%. June shipments per day up 18.4%, tonnage up 12.2%. In July, with still a few days left, shipments up around 10% or so, and tonnage up about 4%. Keep in mind, we have some pretty large comps over the last few days of July when volume really started to ramp post the disruption last year. So, we had some tougher comp days ahead, but that's where it's trending as of today. And we don't give much in terms of our revenue guide, but shipments and tonnage are where they stand.

Weight per shipment is there, so we could just think about that?

It moves around a little bit, but I think in terms of the shipments and tonnage numbers, that kind of gives you an indicator of where it's going.

Got it. Thank you very much. Appreciate it.

And your next question comes from the line of Tom Wadewitz with UBS. Your line is open.

Yeah. Good morning. Yeah. So Fritz, I think you commented a little bit on the annual OR. I just wanted to clarify and make sure I understand. Are you still think you can do 100 to 150 basis points of improvement for the full year? Or are you saying kind of given the mix challenges that's no longer realistic? Just wondering how to think about the full year OR view.

Yes. I believe the correct interpretation is that for Q3, we are unlikely to maintain our full year guidance of 100 to 150 basis points regarding operating ratios. At this moment, I'm uncertain about how the business mix trends will affect us moving from Q3 to Q4. Therefore, I’m not prepared to make any definitive statements. However, I do expect that we will see an improvement in operating income year-over-year for the full year, and we feel optimistic about that. I’m not sure where the operating ratio will settle at this point, but if we can keep it close to last year's full year, that would be quite satisfactory.

So maybe the best place to be is kind of flattish full year OR?

Yes, I believe it is. The outcome may vary because the mix is uncertain, and we have many openings ahead. However, we are still generating a significant amount of value, driving operating income growth year-over-year. At some point, we need to focus on that.

Okay. And I guess, to go back to the kind of price versus mix thing, is there an element of this that is you're adding capacity and so the price you're offering reflects that you want to bring volume in? I mean it doesn't sound that way. It sounds like it's really just all about mix. But how do we think about the impact of price competition and what you're doing with price recognizing the backdrop is you are adding a lot of capacity?

Yes, we do not prioritize price in our operations at all. Rather, we are currently focusing more on national accounts than we have historically. This shift results in lower revenue per shipment compared to other segments, such as the field or 3PL segments. This is affecting our results at the moment. However, when we open new facilities, it's not solely to increase volume; rather, our aim is to enhance service, and we expect to be compensated for that service.

Okay. So there's no change in your approach to market on price?

No, absolutely not.

Okay. Thank you for the time.

And your next question comes from the line of Jon Chappell with Evercore ISI. Your line is open.

Thank you, and good morning. Matt, on labor and PT in aggregate, up as a percentage of revenue, 2Q versus 1Q, that's a rarity, understand their start-up costs from all the openings, but just wondering if there's any way to detail how the efficiency is evolving at the legacy network? And are there any other cost initiatives that can be pursued at the vast majority of your network while you're waiting for the industrial freight recovery to begin?

Before we discuss costs, I want to highlight that we achieved an operating ratio of 82.2% in our legacy facilities, which we consider a positive outcome given the mix of business challenges we faced. This suggests that under stable conditions, we might operate around 80%, which is a strong performance. Matt, what can you tell us about costs?

Yes, Jon, over the years we've effectively utilized PT as part of our linehaul network and cost structure. We're confident in our approach. When we open new facilities and build density, there are times we insource operations with our own drivers, while also having opportunities to outsource some of it to PT. Although the flow may not always be seasonal, this can be attributed to the ongoing openings where routes aren’t fully dense, impacting our operations compared to when we're fully operational. New terminals don't start with market share right away, so we can engage with our existing customer base about our expanded footprint and services, providing added value. PT will remain a key part of our cost structure, and we are satisfied with how we manage it. There are no significant changes in our perspective. Additionally, regarding inflation, we are observing a typical cost increase of about 3% to 4% per mile in that segment, which aligns with our expectations.

Okay. That's helpful, Matt. And then just for my follow-up, Fritz, you mentioned specifically not chasing volume. And I'm just trying to understand as we think about the duration of some of these mix headwinds, is this a function of the macro and just retail is doing better than industrial? Is it a function of some of the new regions you're entering just tend to be more retail heavy than industrial? Or do you just kind of have to fill density in the terminals at this point, and you'll focus on the ideal mix at some point in the future?

No. What we're seeing is that the overall mix of our business has changed compared to last year. As we open new facilities, the freight associated with them reflects the downward trend we are experiencing. This isn't something we are actively pursuing. Over time, we will be able to optimize our portfolio across these facilities. It's important to consider these terminals with a long-term perspective. The long-term outlook for our company is that as we invest in these facilities, we receive freight and aim to add value for the customer. We ensure that we attain pricing that aligns with the freight by understanding customer requirements, timing, freight characteristics, and other factors, while staying focused on pricing. Looking at our track record demonstrates that our strategy is effective.

Okay. Thanks, Fritz. Thanks, Matt.

And your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open.

Yeah, hi. Just follow-up a bit on terminal openings. Can you maybe give a little more color on the process of the terminal openings, the start-up needs, how much in front before volume comes in? And then maybe some sense just so we could help in terms of when we get back to sort of normal seasonality on margins, I know there's other factors, but how long does it typically take to like fully season a terminal in terms of where you want it to be, volume/margin wise?

It really depends on the specifics. For example, in the second quarter, we opened six new facilities and relocated one to Garland, Texas, which opened in April. For the entire quarter, its operating ratio was similar to the company's overall ratio, indicating that it was a positive decision. In the Dallas metro area, adding a fourth facility led to a year-over-year increase in the operating ratio by about 80 basis points, even with one facility running at a higher ratio. This facility immediately contributed positively to our network. Then we have the larger Laredo, Texas facility, which involved relocating and required us to train staff over three to four weeks leading up to the opening, so we were fully staffed upon launch. While Laredo may take some time to positively impact the operating ratio, I expect it won't significantly hinder the company in the coming year. The facilities we've opened in the Great Plains will offer great opportunities for customers by improving service to those markets. However, these new terminals might not match the company's operating ratio initially, perhaps even in the next year. The Dallas terminal is now able to pickup freight in Dallas for delivery to Montana, something we couldn't do before, which will enhance the overall network. We aim to make these investments collectively, though each one varies. The critical aspect is ensuring that the customer experience is consistent with what we provide elsewhere, which unfortunately requires significant cost investments. While it might seem these processes would be straightforward without extra costs, that's not the case. Long-term investments require time to develop fully. We've made those investments, and while some, like Garland, may yield immediate benefits, Laredo might take longer. However, all of this contributes to the overall value we are providing.

If we look at it, Jordan, everything gets opened this year. If it all happens, we'd opened 21 new facilities and relocate another 10, by far the most we've ever done in a year, in a challenging macro backdrop. What excites us about that is that's 21 new facilities and 10 expanded locations that when the macro gets better, we're ready to take advantage of it and do a great job for our customers. So, if you're not in these markets like Fritz just talked about, you don't get that opportunity with existing customers or new customers. Those are just missed opportunities. So there's costs associated with them, but there's also a cost of not being in the market.

Got it. And if I could just ask a quick follow-up, more of a near-term question, sorry, but thanks for the tonnage data around July. I mean sometimes you guys give a hint a little bit how perhaps things could look sequentially revenue-wise or even with those tough comps coming up? Is there a way to think about that 4% year-over-year tonnage in July and directionally from there? Thank you.

Not much more detail than that. You alluded to it, but volume ramped last year pretty substantially throughout the quarter. So comps get tougher while the disruption was going on, but not much more to add for us. We're focused on the execution in terms of these new openings, nine additional ones in this quarter and really doing a great job for our customers in the legacy and the new markets.

And we're focused on continuing to get the right rates in place. You saw the contract renewals over the last several quarters. We would expect those kind of rates to continue, and we'll continue to start realizing some of those rates in the numbers over the coming quarters.

Thank you.

And your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open.

Thanks. Good morning, and thanks for all the details so far. Maybe just to kind of downshift a little bit and kind of go to a higher level, is it fair to say that this mix drag came as a surprise? Because you seem to imply that this is fairly reflective of what customers in the new regions are like, but, at the same time, kind of obviously, it wasn't the guidance and such. So, I'm just trying to get a sense of do we just not have the visibility on kind of what that mix looks like until it actually comes through the facilities? And the reason I ask you because I'm trying to get a sense of how much confidence kind of we have as an industry in terms of what the price mix characteristics will be like kind of going forward, kind of just given these trends?

About a year ago, Yellow left the industry, and throughout this year, we anticipated a change in our business mix as it adjusted between carriers or as customers sought suitable service offerings. We've also noticed a general softness in the industrial economy, reflected in our weight per shipment even before Yellow's departure. This industrial backdrop wasn't very beneficial for us. As we entered the second quarter, which is typically our strongest quarter, we expected to see a business mix trend similar to previous quarters. However, the industrial economy didn't improve as we had anticipated, though we did observe an increase in business from our national accounts focused on retail, who value quality and service. This led to more business than we expected, with a mix that differed from the first quarter and occurred in a stronger seasonal period than in the first or fourth quarters of the previous year. We're still learning about the market dynamics following Yellow's exit. Currently, I don't see any indicators suggesting a resurgence in the industrial economy that would alter our business mix, but we will continue to work on finding the best mix for our numbers over time.

Understood. That's really helpful. And maybe a follow-up. kind of your comments on the back half are very helpful. When can we expect the OR to start materially beating seasonality here? Is that a function of macro and is like a certain benchmark on either tonnage growth or revenue per shipment growth that you think kind of will drive that? Or do you think we need to wait until you start really lapping some of these new facility openings? And kind of when will that happen?

I believe there are several factors that could affect this. We have opened some significant facilities in Garland, Texas, Trenton, New Jersey, and Laredo, all of which we consider strategic and valuable for our customers over time. I expect these businesses to keep improving, and I anticipate that the terminals we've opened in the past three years will continue to mature, which is crucial for our growth. Our focus is not just on the current operating ratio; we believe we can enhance these facilities over time and return to generating an improvement of about 100 to 200 basis points in operating ratio. To achieve this, we likely need to move past the start-up costs associated with opening new terminals, which may extend into next year. At that point, we will concentrate on creating long-term value with the facilities we have opened. It’s essential to open these facilities so that when the economy rebounds, we are in a position to leverage our footprint effectively. This aspect tends to get overlooked when we concentrate solely on the current quarter, but it’s important to remember that this is a long-term investment in the business. As we develop and mature these facilities, the mix of business will benefit us.

Very clear. Thank you.

And your next question comes from the line of Eric Morgan with Barclays. Your line is open.

Hey, good morning. Thanks for taking my question. I wanted to ask one on service. I think in the release, you mentioned doubling down on your quality focus, which is driving some of this training costs. So can you just give us some insight into how service has been trending, especially at the new locations? Just kind of curious if some of these incremental costs per locations may be higher than in the past if you're seeing any challenges with growing a little faster than in the past, just would be curious on your comments there.

Yes. I believe our main priority is to ensure we have the right training in place. We are placing a stronger emphasis on this as we open new facilities, which is crucial to maintaining consistent service. If we launch a new facility without proper training, we risk disappointing customers, which undermines our value proposition. We can't really quantify the cost of training directly. There may be some marginal adjustments we can make, but they likely won't be significant at this level. The facilities we opened in Q2 are substantial, and as they mature, they will help mitigate the impact of future openings, both this quarter and next, on our profit and loss. When we open a facility, we consider the long-term investment involved. Over the last 50 facilities we've opened, we've maintained this long-term perspective. This focus is vital because these are long-term assets. If we become overly focused on short-term results from the second quarter or the outlook for Q3 rather than delivering value to our customers, we risk eroding value within the business. Therefore, we will continue to be prudent in our spending and investments. If we can optimize costs without compromising customer service, we will, but any compromise on service quality would detract from our overall value.

To emphasize this point, Stephanie, Fritz shared the example of the Dallas metroplex. Last year, we opened several facilities in the Kansas City area, including a significant one in Kansas City West. This facility has been operational for just over a year and is currently performing in the 70% range for us. Initially, we faced typical challenges with training, onboarding, and equipment relocation, which affected performance in the first few months. However, looking back a year later, the facility has been running smoothly, and we anticipate further improvements. This aligns with Fritz's earlier point that our investments span five to ten years, strategically positioning us to offer value to our customers.

Thanks for your input. I have a quick question regarding the volumes for the third quarter. I believe there are more fluctuations this quarter compared to previous third quarters, particularly because of disruptions that started last year. Could you help us understand how to approach month-to-month variations, considering factors like seasonal increases, tough comparisons due to last year's disruptions, and the absence of seasonality? Any insights you can provide would be appreciated.

As you know, the disruption win started kind of late Q2 last year. And then our volume really started to ramp if you look at the first half of the July to the back half of July of 2023. So I think it really probably ramps from here in terms of what the comps look like from last year. We've really started to see that, and some customers hung on until the final verdict was given. But we saw it ramp throughout Q3 last year, I think is a fair way to look at it from a disruption standpoint.

Yes, this will make the comparisons for this quarter a bit more challenging in the latter half, but we will also benefit from everything we have opened, not just in Q2 but also from what we will add in Q3.

Understood. Thanks so much.

And your final question comes from the line of Bascome Majors with Susquehanna. Your line is open.

Fritz, there has been concern about the start-up costs of your expansion that investors have raised for about seven years since the Northeast expansion began. A notable development is that you have become so proficient at it that investors have largely stopped worrying about these costs as they did before. I'm interested in any insights from recent months regarding this. Have you been able to adjust the software or technology used to assess and estimate these costs? Additionally, what about the investments you've made in pricing and understanding the cost structure of your freight when entering new bids? I'm looking for your thoughts on potential improvements moving forward that could support your growth strategy and enhance your understanding of costs over the next few years.

Yes, that's a good question. It's important to remember that opening any terminal involves many factors. This quarter, we opened three significant facilities in Laredo, Trenton, and Garland, which are expected to rank among our top 15 or 20. These facilities are crucial. The others we've opened are more on the outskirts of our networks, which incurs some additional costs. We may have been overly optimistic regarding the volume trends from a couple of those facilities. Laredo presented its own challenges; scaling to a larger facility in a market we were already familiar with led to underestimated costs. However, out of the last 50 facilities we've opened, only one had underestimated costs, which is a decent outcome. On the positive side, we opened Garland, which exceeded our expectations. It's unfortunate that when modeling these scenarios, many factors can be difficult to quantify. Nevertheless, with six new facilities open, we anticipate that as we develop them over the coming quarters, they will create additional value for both our customers and Saia, and the benefits will materialize over time. We're optimistic about what we will achieve.

And to the question on the costing of your freight when you're taking on new customers, different mix, that sort of thing, has there been any learnings there that from this? I'm just curious if it's actually the operating cost or more of the cost of servicing the freight that has been a bigger surprise? Thank you.

We are always striving to improve our cost model and enhance our understanding of our services for customers, which is continually evolving. The challenge in the industry is the lack of volume agreements and commitments from customers. This means we operate under certain assumptions, but customers' requirements can change, and they may choose different routing options than anticipated. Therefore, it requires ongoing diligence on our part to fully understand our services, the solutions we're offering, and to address more complex locations. This is consistent whether at a legacy facility or a new one. We are constantly refining our analytical methods to foster better discussions with our internal teams and our customers.

And that concludes our question-and-answer session. I will now turn the call back to Mr. Fritz Holzgrefe for closing remarks.

I want to thank everyone for joining us to discuss Saia's results. We are very excited about the opportunities created by the terminal openings in the second quarter and their impact on both our customers and our company. Looking ahead to Q3 and Q4, we see significant long-term growth opportunities for Saia. We are proud of our team's outstanding efforts in serving our customers, and as the economy changes, we aim to be well-positioned to capitalize on those changes. We look forward to sharing our results with you in the coming quarters. Thank you for your time.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.