Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Maybe for Carl to follow-up on the CapEx. Can you give a breakdown in terms of the 85% or so percent that’s LTO? What’s real estate? What’s tractors and trailers? Can you give us a sense of what terminals are leased versus owned? I know we’ll see that in the 10-K before too long. And then, can you just wrap that into maybe a range of expectations for free cash flow for the year?
Carl Anderson: Yeah. Sure. So, if you look at kind of the breakdown about 70% of the CapEx that we’re planning for really is between tractors and trailers and it’s weighted pretty much equally. The remaining amount is kind of split between other things. There’s a little bit in there for real estate as well, which probably adds another 15%. And if you think about the mix between purchase and lease about 40% — or excuse me — between owned and leased, 40% is owned.
Brian Ossenbeck: And any thoughts on free cash flow, and what that all shakes out to–?
Carl Anderson: Yeah. I mean, I think as we look at — yeah, it’s a fair question. As we look at the first quarter, we are planning to really accelerate our CapEx expenditures. And it’s really going to be based off of the availability of getting new trucks in. So, there’s a chance we can have up to 50% of our CapEx spend could occur in the first quarter, obviously subject to the availability of what we’re seeing right now. I think, additionally, as far as cash flow, a couple of other points we should kind of point one, we are not planning for any real estate sales in the — in 2023. And two, we do expect to have higher cash interest costs as well that would factor into your free cash flow numbers for us.
Brian Ossenbeck: Got it. And then, just a follow-up on one of the other variables we’ll be looking at this year, the impact of fuel. So, you can look at fuel surcharge at more than expense. Obviously, Mario mentioned there’s purchase transportation component on that. But if the fuel curve stays where it is, how does that affect LTL OR and EBIT as we go throughout the year?
Mario Harik: When you look at fuel, it’s always been part of the economics of an LTL carrier. So, when customers pay us our services, they have a price that is inclusive of fuel and similar to all carriers. Now when you look at the price of diesel today, last year we — on a full year basis, the price per gallon was roughly in the upwards of $5 per gallon while current is in that $4.6 range. So, if the level stays at current levels, that will most likely be some pressure related to that. And obviously, the positive side though of fuel being lower is going to simulate more economic activity and also would have more yield ex fuel type strength associated with that as well. But obviously, we’ll see how the year does. We are focused from our perspective on the levers that we can control obviously and we’ll see what the year looks like as the year develops.
Brian Ossenbeck: Okay. Thanks for that.
Mario Harik: Thank you.
Carl Anderson: Thank you.
Operator: Thank you. Our next question comes from the line of Jason Seidl with Cowen & Company. Please proceed with your question.
Jason Seidl: Thanks operator, and Mario and team. I wanted to get back to the pricing yield side. I don’t think I heard this. Can you talk about what you’re pricing new contracts at in the quarter?
Mario Harik: For the fourth quarter, we were roughly at 7%.
Jason Seidl: Okay. All right. So, maybe you could help me out here about your comments about sequential yields from 4Q to 1Q. Mario, I believe you said they were going to be about flat. And I’m assuming that was an ex fuel commentary?
Mario Harik: That’s correct.
Jason Seidl: Okay. So, why is it going to be flat when you’re repricing at 7% in the quarter, your GRI also moved to January. I would assume that would drive it up, or is there just another massive mix shift going to happen again in 1Q?
Mario Harik: When you look at for the first — yeah, sequential. When you look at the first quarter, we expect the year-on-year to be up similar to what we’ve seen in the fourth quarter ex fuel. And this is what we have seen in the month of January. Now some of the dynamics that impacted our yield in the fourth quarter are sell-through for the first quarter, which includes the mix change between national and local. And the local weight per shipment, it still has a similar dynamic of what we saw in the fourth quarter so far here in the — at the beginning of the first quarter. So that dynamic and mix change has not changed from the fourth quarter. The only change is the GRI that we took in the month of January. Now typically, our local accounts are roughly a quarter of our business.
So, obviously, that’s about a 1% flow through on, call it, 1% to 2% flow through on yield — on total system yield associated with the GRI we took in January. But again, there’s the same dynamics for national to local shift and dynamic for length of haul are still impactful in the first quarter as well.
Jason Seidl: Okay. And — all right. So, I guess, I’ll just take this offline because when I look at weight per shipment, all other things being equal, should help yield going down at least. Questions about the network here. You had some nice damage rates in the quarter, best numbers in six years. That’s fantastic. You have a 14 point on-time improvement. Could you compare the on-time improvement sort of where you’ve been historically? So, you gave the year-over-year, what does that put you on a historic on-time performance level versus your old numbers?
Mario Harik: So, we are back to pre-COVID levels on these numbers for quality, which is the damage frequency piece, we are back to the best in six years. And on-time and another metric we use internally is what we call network ability, we’re back to what we were in pre-COVID to-date.
Jason Seidl: And where when you look at your network right now and I know you’re adding terminals and everything. So, how much excess capacity is in the network? And is that going to increase as you add terminals and then you just eventually take that down?
Mario Harik: So, in terms of overall capacity in the network, we’re roughly in the 20% available capacity across the network. However, in some markets, we already tapped out on capacity. I mentioned earlier on, for example, the markets were opening up in. When we opened up in Atlanta, a terminal over — through the course of 2022, we’ve seen volume in that market uptick considerably because we had the customers, we had the demand, and we needed more physical space. Now when you look at our plan of adding 900 net new doors through the course of the two years since we started our LTL 2.0 plan, that’s roughly around 3% per year and it is in markets where we already were set out on capacity, and we’re adding more capacity to handle more volume for our customers.
Jason Seidl: Appreciate the color and time as always guys.
Mario Harik: Thank you.
Operator: Thank you. Ladies and gentlemen, our final question this morning comes from the line of Jack Atkins with Stephens Inc. Please proceed with your question.
Jack Atkins: Okay. Great. Thank you for squeezing me in here. I appreciate it. I guess, maybe kind of going back to an earlier line of questioning on just sort of the network and network investments. I mean, Mario, when I kind of think about the last three years, your EBIT and LTL is up 25% or so. Your peers in LTL are up on average about 200% over that timeframe. So, I guess, conceptually and strategically, why does the network deserve to be able to invest more capital into expansion when you haven’t sort of been able to justify the capital that’s already in place? I would think the idea would be to really improve the performance of the existing network, improved price, improve lane balance. Why are we adding capacity when we’re not getting an appropriate return on the capacity already in place?
Carl Anderson: Hey, Jack. It’s Carl. So, if we look at just from a return on invested capital perspective, we are actually getting a very sizable return. It’s — if we look at what we did — it’s running probably 34% as far as on a return on investment capital. So, reinvesting into the network, obviously, is very — is a pretty big benefit as it relates to what we’re getting for those investments.
Jack Atkins: And the underperformance versus peers?
Mario Harik: Yeah. When we look over, and we discussed this quite a bit, Jack, in the past. A lot of it went back to capacity we had into the network. So, on pre-COVID all the way through end of 2021, the amount of capital we invested into the business was based on a maintenance amount of CapEx to refresh equipment, but not to add capacity so we can handle more volume. And obviously, we have discussed quite a bit what happened back in 2021. And these were the dynamics. Now moving forward, we’re solving for all of these things. So, we are investing capital in capacity, so we can say yes more often to the customer and ahead of demand. We are very focused on continuous improvements in service to be best-in-class in the service we offer our customers. And these over time will pay dividends both in terms of margin expansion and higher returns through our plans through 2027.
Jack Atkins: Thank you for allowing me to ask the question.
