Saia, Inc. (NASDAQ:SAIA) Q1 2024 Earnings Call Transcript

Saia, Inc. (NASDAQ:SAIA) Q1 2024 Earnings Call Transcript April 27, 2024

Saia, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to Saia’s First Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. After the speakers’ remarks, we will conduct a question-and-answer session. [Operator Instructions] 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.

Douglas Col: 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.

Frederick Holzgrefe: 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 seven 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 first 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 all 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 linehaul and driving teams. Our plans to open 15 terminals to 20 terminals in total this year remain and we’ll also continue relocating some existing terminals as we’ve done with four so far this year. Relocations are an important part of the story as these relocated terminals often offer us 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 in — included in that is our desire to have more locations through which to serve new and existing customers. The roll — 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 two 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 improved service in new locations. I’ll now turn the call over to Doug for more details from our first quarter results.

Douglas Col: Thanks, Fritz. As 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 headcount growth of over 15% year-over-year in response to an overall increased volumes during the quarter and also the result of our July 2023 wage increase, which averaged approximately 4.1%.

Purchase 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 linehaul miles in the quarter. Fuel expense increased by 3.7% in the quarter, while company linehaul 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 an 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 $2.80 — $2.85 in the first quarter a year ago. I’ll turn the call back over to Fritz for some closing comments.

Frederick Holzgrefe: Thanks, Doug. Our customer-first focus continued to deliver tangible results across our organization. In January, we were excited to close on what we view as the generational opportunity for our Company to build our real estate pipeline and have developed 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 are 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 radiant 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 do 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’d 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 four facilities in Q1. More significantly, we’ve already opened four new facilities in April alone and we’ll plan to open two and relocate an additional facility before the end of the quarter.

We proudly 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 with a 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 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 seven years and we’ll continue to follow that blueprint going forward. Establishing a great culture in 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-one with all new openings. So as we move forward through 2024, we continue to see macro uncertainty. At the same time, we continue to sit — 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 that 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 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 and 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’m 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 open — ready to open the line for questions, Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question will come from Scott Group from Wolfe Research. Please go ahead. Your line is open.

Scott Group: Hey, thanks. Good morning and 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.

Douglas Col: Okay, buddy. Thanks for the comments too, Scott. So yeah, March, I think we quoted the March shipments up 16.8% and tonnage was up 5.2% for the month, so still reflecting that weight per shipment decline we’ve been experiencing for the last several months. April so far, we’ve 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 a 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 a 1% or 2% of benefit because it’s an easy comp there. Tonnage per day so far in April is 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, a 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, I mean, the last few days make us feel a little bit better, but I — we’re not going to — that doesn’t make a quarter as we saw in Q1. So we feel a little bit better about what we’re seeing lately, but I don’t — 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 — from an operating ratio standpoint, 250 to 300 is probably our history if you take out the COVID years.

No, so but that — 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 that — 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 — yes, you do some of the hiring before you open a terminal, things like that. So for us this year, if we could improve 150 basis points 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 teen, name on it, for revenue growth if we did that year-over-year and the operating income up a little better than that if we hit those goals. So I mean, to be doing 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 managed cost over the last few months. I mean, we geared up for bigger volumes in March, and when they didn’t come through, you’re staffed up for, you’re hiring drivers in advance of your seasonal expectations, you’re hiring dock workers. And I mean, as the volumes didn’t come through in March, we did a good job on the cost side pulling PT 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 variables are changing every day, so I’ve been pleased. But that’s our Q2 outlook. And I’d still [Multiple Speakers] say, I mean, we don’t give any — 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 basis point to 150 basis points improvement is getable this year and we’ll see what the macro deals at us, I mean, things could get worse from here or something, but we didn’t — Q1 didn’t knock us off a path to improve the OR this year. So, that’s our view today.

Scott Group: Yes. The 150 bps, 200 bps, that’s sequential — margin improvement, correct?

Douglas Col: 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 these — we don’t open them until we’re ready to go. So, that’s always fluid, but we’re real pleased these first six openings this year we’re really pleased that there — five of those are going to be staffed with Saia people and we transfer that culture up there and then focus on the employee and our non-union — I mean 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.

Scott Group: Yes. And then maybe just lastly, Fritz, maybe just talk about pricing. I don’t know if you gave the renewals number, maybe share that and just overall what you’re — is pricing getting harder or not?

Frederick Holzgrefe: Listen, that’s an ongoing pricing environment is something we’re intently focused on. Our contractual renewals in the quarter were 9.2%, which we were pleased with that number. But, we’re not satisfied with that number, meaning that we’ve got — the service levels that we’re providing deserve 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 lot stronger position to get the rate increase when you’re in a position to point to the service levels that customers are getting and an expanding network.

Scott Group: Makes sense. All right. Thank you guys for the time. Appreciate it.

Frederick Holzgrefe: Thanks, Scott.

Douglas Col: Thanks, Scott.

Operator: Our next question comes from Amit Mehrotra from Deutsche Bank. Please go ahead. Your line is open.

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

Frederick Holzgrefe: Yes. Thanks, Amit. Yes, you’ve highlighted two 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 Newark and Philadelphia, both so that was expensive and for one it was responsive for our customers as we’d like to be. So early indications out of the gate that that’s going to be a great investment for us so we’re really pleased. And it’s important to note, I mean, I know there sometimes it comes up, but that’s being led by a Saia — experienced Saia terminal manager from the start. So we — when we moved into that terminal, we were ready to go with replicating Saia culture and Saia service, so that’s really exciting.

Early, 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 staffed by long-time Saia experienced people. So they know exactly what it means to provide Saia service. So we’re thrilled with the early results. 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 facilities, because of its proximity, is some important accounts for us has been great to see. When 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, great opportunity for us.

So we were thrilled with both of those investments.

Amit Mehrotra: 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 six, seven months that there’s a big pricing opportunity. And obviously, you’re going to lean into the service and sell the service. And 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 — because there — 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.

Douglas Col: Yes. Fritz and I will probably tag team this one. Revenue per shipment despite the lighterweight, still up year-over-year. The sequential trend, I mean, 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 some of our national account customers are really sophisticated and they optimize the use of the carriers in their [indiscernible]. And 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 the cost side so when I go to pick up with one of these larger accounts instead of getting two or three bills, I’m getting five or six and — 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 cost per shipment was down more. So my margin picked up. So we’re managing through it. I mean, we’re 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. And just because we talked in the fourth quarter, if we’re looking at that business and we’re being optimized 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 that with the capacity that’s 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 every — everyone in our view is still holding the line on pricing.

But if you give us a stronger macro backdrop, I’d 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. So, ask our truckload friends, I mean, it’s hard to go get price sometimes. And when the freight picks up, we’re all going to get some — get some more price, but —

Frederick Holzgrefe: I think I would add to that, Amit. A couple of points. I mean, if you go back to when the disruption really started last summer, we talked a lot about how we would see kind of 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. I see you’re also seeing an intense focus by us to continue to deliver on service and pricing at the same time, so that service isn’t inexpensive to deliver. So we make sure we go after that. But I would point out, there’s a nuance here that hopefully doesn’t get lost. As Saia develops that sort of 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 I would, that’s an unique to our sort of situation as we develop the maturity in our business. We have an opportunity to build that route density, build density around the linehaul network. And it’s some pretty good execution underneath that in a turbulent environment. So I — those are important value creators over time.

Amit Mehrotra: Okay. Very helpful. Thank you, guys. Appreciate it.

Douglas Col: Thanks, Amit.

Operator: Our next question comes from Bruce Chan from Stifel. Please go ahead. Your line is open.

Matt Milask: Hey, good morning. This is Matt Milask on for Bruce. We’d echo congratulations to Doug as well. I’m 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?

Douglas Col: Yes. I mean, I don’t think we’re seeing any change. We’re not really seeing it in competitors’ results who have put up numbers so far. A lot of lot of consolidation, right? I mean, 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 that’s kind of mothball until people are ready to open terminals, so I don’t think we’re seeing any change other than like Fritz said. I mean, right now, when freight trends are softer, the shippers got options, right? So if they’re not as stressed because their need isn’t as great. But if demand picks up seasonally or the macro tailwind develops, well, then it becomes a little tighter.

And then they want commitments and they want really high service standards. So until we get a little bit of that, I think you’re going to, like Fritz said, continue to see people trying this carrier for a while, see if it works, try this carrier. And I think that’s probably going on, but I don’t think there’s competitive actions going on out there that are negative, so.

Matt Milask: Fair enough. Thanks for that. 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?

Douglas Col: Well, I mean, look, I mean 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 Saia’s got that idiosyncratic growth from these new terminal openings. I mean, 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 and that will be a little bit of a 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 now we’re not ready to call it a turn or anything like that.

Frederick Holzgrefe: I mean, we have shown. I mean, as Doug pointed out, right, and we’re not in the spot where we can really point to what we think the number would be. But I think we’ve shown that we know how to execute on an opening, deliver the service, and we’re going to get growth out of these new facilities. Now the question is what the sort of legacy might — or might look like or what those opportunities might be. I mean, what we saw is not what we thought it was going to be in the first quarter, but at the same time, we delivered some pretty solid results in light of that kind of core execution despite the challenges that are in the marketplace. So I feel pretty good about the rest of the year and our core execution and what we might potentially do.

Matt Milask: Nice color. Thanks.

Operator: Our next question comes from Tom Wadewitz from UBS. Please go ahead. Your line is open.

Tom Wadewitz: Yes, good morning. And that — 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, I guess, 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 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 second half? And does that affect what the margin outlook is, or is it just kind of like maybe you open it, but you staff it with fewer people? How do we think about that dynamic and pace of openings and also kind of how the margin would be affected if you do ease up on the pace of openings, looking out of ways, obviously not second quarter.