Saia, Inc. (NASDAQ:SAIA) Q4 2023 Earnings Call Transcript

Saia, Inc. (NASDAQ:SAIA) Q4 2023 Earnings Call Transcript February 2, 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: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2023 Saia Incorporated Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Doug Col, Saia’s Executive Vice President and Chief Financial Officer. Please go ahead.

Doug Col: Good morning, everyone. Welcome to Saia’s fourth quarter 2023 conference call. With me for today’s call is Saia’s President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should know that during the call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some opening comments.

Fritz Holzgrefe: Good morning, and thank you for joining us to discuss Saia’s fourth-quarter and full-year results. I must start my comments today with a word of thanks to the entire Saia team for their dedicated efforts, as we worked through volatile business trends in 2023. We started our 100th Anniversary Year with an engaged team that delivered a record number of shipments in 2023, just shy of $8 million in total for the year, and in turn 2023 revenue of $2.9 billion was also a record for our company. 2023 was really a tale of two halves, both shipments and tonnage per workday were down year-over-year for the first six months of the year, continuing a trend, which began in the second half of 2022, as the industrial economy slowed.

Turning the calendar to the month of July, our industry experienced a generational type of movement as a large national competitor began limiting service, and ultimately ceased operations. At Saia, we saw volumes increase by as much as 10% to 20% on a given day from trends just a month earlier. Our contingency planning in advance of this change, put us in a position to handle the increased volumes almost seamlessly, while still maintaining excellent service for our customers. In the months that followed that initial surge in business, we increased our staffing levels by adding nearly 1,500 dedicated employees in the second half of the year, 90% of which were drivers, dock workers, and frontline leadership to support growth. We focused our team on taking care of the customer, as we absorbed all the growth in the second half.

We’ve continued a painstaking process of investing in our network to maintain our service, while also optimizing how we provide the service with our expanding linehaul and driving teams. We have plans to open 15 to 20 new terminals in 2024. Our teams are committed to accomplishing this with an eye on always putting the customer first. Those customer-first initiatives have been the cornerstone of our success over the last several years and included in that is our desire to have more locations through which to serve new and existing customers. In Q4, Mastio released its latest survey results. The results highlight a couple of significant achievements for Saia. First, the scores highlight our continued improvement and positive feedback from our customers recognizing Saia’s ongoing investment in service.

Second, it’s becoming increasingly evident that customers are viewing us as a leading national LTL provider, reflecting not only our investments in services but the expanding footprint. It is critical to note there have been no drop-off in perceived levels of service. Importantly, we’ve added nearly 20 new facilities in the last two years. Customers are recognizing our ability to not only improve service but to replicate that improved service in new locations. So, today, we’ll have to give a recap of 2023 results and provide an update on our plans for 2024. I will now turn it over to Doug for a review of fourth-quarter results and full 2024 financial highlights.

Doug Col: Thanks, Fritz. Fourth quarter revenue increased by $95.4 million to a record $751.1 million. Shipments grew by 18.1% and with weight per shipment decreasing by 8.3%, tonnage growth for the quarter was 8.2%. Yield, excluding fuel surcharge, improved by 11.7%, while yield including fuel surcharge increased by 7%. The reported yield results benefit from a lighter average weight per shipment versus the fourth quarter last year. Revenue per shipment, excluding fuel surcharge increased 2.4% to $295.22 compared to $288.34 in the fourth quarter of 2022. Fuel surcharge revenue decreased by 3.4% or 17% of total revenue compared to 20.1% a year ago, primarily the result of lower national average diesel prices, which are used to establish the surcharge rate in our fuel tables.

Shifting to the expense side, a few key items to note in the quarter. Salaries, wages, and benefits increased 20.2% from a combination of our increased employee headcount of approximately 14% year-over-year to support our network expansion and volume growth over the last six months, and also our July 2023 wage increase, which averaged 4.1% across our employee base. Purchase transportation expense increased by 8.4% compared to the fourth quarter last year, primarily due to increased purchase transportation miles, partially offset by a decrease in the cost per mile compared to the same period in 2022. PT expense was 8.7% of total revenue compared to 9.2% in the fourth quarter of 2022. Purchase transportation miles were 15.4% of total linehaul miles in the fourth quarter compared to 12% in last year’s fourth quarter.

Fuel expense decreased by 12.1% in the quarter despite company miles increasing 7.6% year-over-year. The decrease in fuel expense was primarily the result of national average diesel prices decreasing by over 15.9% on a year-over-year basis. Claims and insurance expense increased by 21% year-over-year in the quarter and was up 5.1% or $0.9 million sequentially from the third quarter of 2023. The increase compared to the fourth quarter of 2022 was primarily due to increase in accident-related self-insurance and claims costs, as well as increases in insurance premiums. Depreciation expense of $45.7 million in the quarter was 15.3% higher year-over-year, primarily due to ongoing investments in revenue, equipment, and our network expansion. Total operating expenses increased by 13.4% in the quarter, and with a year-over-year revenue increase of 14.5%, our operating ratio improved to 85% compared to 85.9% a year ago.

Our tax rate for the fourth quarter was 22.8% compared to 24% in the fourth quarter last year, and our diluted earnings per share increased to $3.33 compared to $2.65 in the fourth quarter a year ago. Moving onto the financial highlights of our full year 2023 results, as Fritz mentioned, revenue was a record $2.9 billion and operating income was $460.5 million. Our operating ratio deteriorated by 90 basis points in 2023, to exactly 84.0%. For the full year 2023, our diluted earnings per share were $13.26 versus $13.40 in 2022. I’ll now turn the call back over to Fritz for some closing comments.

Fritz Holzgrefe: Thanks, Doug. To continue to operate with an OR in the mid-80%s, given the activity in the network during the quarter is a testament to the improved operating performance of our team over the last few years. Our customer-first focus is yielding tangible results across our organization with the talented growing and engaged workforce, the value proposition to our customers continues to grow. We initially embarked on our geographic expansion in 2017 with four terminals in the Northeast. Since that time, we’ve opened 48 facilities as we’ve covered the Northeast geography, while also refining the strategy to enhance our coverage in legacy markets. Throughout, we’ve actually seen our underlying service offering continue to improve.

This success was attributable to our team across the organization, who have spent countless hours supporting these initiatives. I’m excited about the terminals acquired in January, and believe this to be a once-in-a-lifetime opportunity for us to be able to bring our offerings to more markets, meet new customers and serve our current customers more efficiently. The last seven years have proven our ability to execute an organic expansion strategy. Critical to our success, opening Saia facilities and intense focus on maintaining our culture, which starts with the customer, we believe the unique opportunities at hand, will allow us to systematically grow over the next couple of years as the facility additions provide an important supplement to our real-estate investment pipeline.

As seen from our results over the last several years, we’ve shown the ability to make substantial investments in our network to benefit our customers, while generating improved financial performance over time and efficiently and effectively deploying capital. Saia will approach record levels of capital investment in 2024, but at no time in the company’s 100-year history have we had a similar opportunity. The capital is focused on continuing developing our terminal network as well as significant investments in our fleet, providing increased capacity and flexibility for our customers. Key to our success will be delivering the customer-first focus that started in Houma, Louisiana, 100 years ago, and has been refined over a century. We continue to have significant opportunity to develop the markets around the other nearly 20 terminals that we’ve opened over the last two years.

Although we’re excited about the success of these locations to-date, we see considerable runway to build density in all these new markets. Finally, before opening the call for questions, I would say there is still lot of uncertainty around the strength of the economy. At Saia, we’ve emphasized the importance of the customer and focusing on the things that we can control. So, as our industry adjusts and adapts to the evolving economic environment over the coming months, my conviction about the long-term prospects at Saia remains steadfast. Great employees, great service, and a growing footprint are all key to securing our position as a long-term share gainer in our industry. With that said, we’re now ready to open the line for questions, operator.

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Jack Atkins with Stephens. Please go ahead.

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Q&A Session

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

Doug Col: Sure, Jack. Good morning. Yeah, like you mentioned, I mean, of the kind of $1 billion-ish number that we target, you’re right about a quarter of it, call it, is related to the Yellow investment. And then, we’ve got to get these terminals ready to get up and opening the ones that were in the purchase that are going to be part of our 15 to 20 openings this year. We’ve got some investments we want to put into them. And then, there’s a lot of construction going on across the network. I mean, we’re upsizing some major terminals, in some different markets. So in addition to the, call it, $250 million or so that was the initial Yellow investment, there’s probably another $300 million plus in real estate this year. We’ve got a big equipment investment, we’re going to make this year.

I mean, first of all, I mean as volumes stepped up last summer, meaningful step up, 10% to 20% kind of over a matter of a couple of weeks, volume increased. Our contingency planning that we have put in place had us renting some equipment, bringing in additional tractors and trailers to get ready to serve the customer, but we want to do that with our equipment and get rid of some of those costs. So, we will be — we’ve upped our trailer by this year, along with just the needs for connecting the network every night and picking up everything in the city. We’ve also got an opportunity to grow a lot of these customers that we’re serving. Value of the service, and if we can put more trailers in their hands, they’ll fill them up for us. So, we’ve been trying to do that over the last several years and the supply chain has limited some of those efforts.

But we’re going to catch up on some of this year. So, you could see kind of call it $400 million to $450 million equipment. And then we’ve got ongoing IT investments that will approach probably $50 million and that’s related — a lot of that’s related to these new openings and you’ve got to get IT in place in the terminals and whatever security technology has put in all the terminals, you’ve got new driver handhelds that we rollout, things like that. So those are the buckets.

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

Doug Col: Sure, buddy. I might as well — I’ll give you the December numbers, too. The October and November numbers were published in the quarter and are public. In December, our shipments per day grew 16.5% and our tonnage per day in December per workday grew 6.8%. And then as we move into January, January shipments per workday were up 11.8%, and tonnage was up 3.3%. So January number, just for little commentary, I mean, we had several days, call it, six or seven days where we had literally dozens of terminals impacted in some of those days. So that’s the same for all of us. We always get about it being an outdoor sport and we got quite a bit of weather in January. It will be hard to give any kind of guide. I mean it’s sunny here to start February, but in some years, February has been the worst weather month for us, we’ll see how that unfolds.

And then, Jack, March is the most important month in Q1, and to Fritz’s point, that’s where maybe will start to get a better feel for what’s going on with this underlying freight economy, that’s a seasonally stronger period for us. So, we’ll see, what things look like in March. But just in terms of the OR guide, usually Q4 to Q1, in the last several years gets a little better. Call it 50 to 75 basis points better, Q4 to Q1. A lot of that’s depending on where the weather falls, but based on how we got out of January, we think that, that’s still reasonable to expect. And again, a lot of it’s going to be determined in March, but we’re still confident that we can show some OR improvement from Q4 into Q1.

Jack Atkins: All right. That’s fantastic. Thanks for the time, Doug.

Doug Col: Sure.

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

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

Fritz Holzgrefe: Yeah. Thanks, Amit. The interesting thing about the opportunity we have here is the facilities that are in our pipeline in the year, they provide a range of opportunities for us. So, some of them are moving into markets that are established, and we’re going to be able to provide some incremental benefit to the customer right away. And those you’d expect to generate — be accretive to us potentially in the year. You’ve got other facilities across the Great Plains states, where we have partnered with agents in those markets to provide service. And now we’ll be able to go to direct to those customers, and we’re really excited about that opportunity. And feedback from customers are that they’re really excited about it.

So, when we think about all those things and what the opportunities are and what we’re doing around focusing on our mix of business, I mean, we’re — as we look at the year, and if we have a reasonable backdrop, I think we ought to be able to think about a range of 100 to 200 basis point sort of OR improvement from ’23. So, on the top end of that range, you probably have got a favorable economic sort of backdrop in the second half, but through that, I think there’s a tremendous amount of opportunities to capitalize on our investments, and we’re very excited about those and what it does for the customer. So, on the lower end of that range, maybe that’s an environment that is not quite as strong or favorable. But I think what we’re doing right now is because we’ve got this customer proposition that is improving over time, that even in a softer environment, we have an opportunity to differentiate, and we have an opportunity for our team to execute.

And I think we can drive those kinds of returns even while we’re making substantial investments in the business.

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

Fritz Holzgrefe: Yeah. So Amit, I think it’s an important point. So, as we’ve taken this freight on, we analyzed this pretty closely and we pulled forward quite a bit of sort of contract renewals into the fourth quarter. Our renewal rates year-over-year, I mean up roughly — contracts — the number of contracts renewed or renegotiated in the fourth quarter are up about 50% year-over-year, and our contractual renewal for the quarter in total was 8.7%. So listen, we’re very, very focused on that. And we’re talking about making some pretty substantial investments in service for the customer this year. And when we do that, we’ve also got to make sure we generate some — the appropriate level of return to support that level of investment.