Q2 2020 Saia Inc Earnings Call
Good day and welcome to the Science incorporated.
Second quarter 2020, <unk> earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference in front you Doug coal. Please go ahead Sir.
Thanks, Matt.
Good morning, everyone and welcome to our second quarter 2020 conference call.
With me for today's call a size President and Chief Executive Officer for its all spread.
Well, we began you should know that during the 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 these calls nonhistorical facts are subject to a number of risks and uncertainties actual results may differ materially.
We refer you got a press release unless you see filing for more information on exact risk factors that could cause actual results to differ.
That said I'll now turn call over the first for some opening comments.
Good morning, and thank you for joining us to discuss size results to start the call day I'd like to thank all saw employees would continue to exhibit great professionalism and teamwork, while working productively through these difficult times more than 90% of our employees are unable to work from home due to the nature of their jobs the willingness to adapt to Dupont.
I will seize procedures unsafe practices has been remarkable.
Unprecedented conditions brought on by covert 19, and it makes it presents many challenges at home and it works and I cannot be more gratified by the responses effort put forth by everyone here at side to adapt to the new normal.
From the start we've focused our efforts and keeping employees and customers save operational practices put in place in March and have been enhanced throughout the quarter to create a safe environment arc terminals and our offices.
Those policies remain in place today, we have consistent distribution of <unk> of P.P. supplies across our network in any one of our employees who is able to work remotely is still encouraged to do so.
Yeah, we communication across our leadership team is taking place at the impact of from Cobot 19 trends from inside our company in the communities, where we work can be assessed.
Many employees across the company or volunteering daily in order to fill in for co workers, maybe out with cobot 19 concerns for family member.
Or who are actually build themselves.
You already challenging environment has been further complicated as the impact and complexity of cobot nineteens impact on the supply chain and economy has varied by city region and even by customer freight patterns have changed in some cases on a daily basis as regions, either reopened with restocking or imposed do restrictions that ultimately slowdown.
These variables along with the operating challenges that I've described have tested or our ability to calibrate in real time.
We're able to adjust our cost structure in response to the declines we saw in April and subsequently support the improved trends that we saw in May and June as ours. As a result, I was very pleased we're positioned to be able to offer a onetime bonus of $250 per employee paid in July to those employees have worked through these trying times.
Considering the incredibly challenging environment I believe we have posted solid financial results in the second quarter revenue of 418 billion was down only 9.9% after starting the quarter as revenue for April revenue per work day down 13%.
Second quarter operating income of 35.7 million was down 30% from a year ago, and our operating ratio deteriorated by 250 basis points to 91.5 compared to the record operating ratio in the second quarter last year of 89, it's worth noting that the we only experienced a 20 basis point margin.
Curations sequentially compared to a record first quarter 2020 result in which we posted a 91.3 operating Russia ratio.
There are several components on the cost side, which Doug Doug will cover in more detail that in the in his comments fundamentally recalibrating our cost structure was critical to our performance.
Despite her shipments dean being down 9.7% for the quarter and with industry volumes reportedly down even more the pricing environment as remain rational our view well our yield including fuel surcharge was down 0.6% excluding fuel surcharge.
Your rose, 2.6% or new <unk> negotiated contract renewals saw an average increase of 4.5%.
With a combination of positive pricing and increase in weight per shipment of nearly 1% and an increase in length of haul 4%. We saw revenue per shipment increased by 3.5% excluding fuel surcharge revenue.
Before I turn it over to Doug for a few review of financial results I'd like to highlight a couple of operational achievements are noteworthy given all the changes made very quickly out in the field. Our cargo claims ratio improved <unk>, 0.65% from <unk>, 0.76% a year ago. This is also the <unk> second quarter in a row, where we saw sequential impact.
Movement.
We're benefiting from our continuous training efforts, particularly with our newest associates and terminals opened within the past year.
Productivity on our docs and in our city operations continued the strong trends for the first quarter and our production metrics improved on a year over year basis.
Through our continued efforts aimed at network simplification. We also saw an improvement in both empty mile percentage and load average despite the lower volumes experienced in the quarter in our expanded coverage area versus the prior year.
Well, so satellites addressed I'll turn the call over to dog for a detailed review of second quarter results.
Thanks for it.
Second quarter revenue was $418 million down $46 million or 9.9% from last year.
Revenue decline was driven by the 9.7% decline in shipment volume compared to the prior year fuel surcharge revenue decreased by 27.6% and was 10.6% of total revenue compared to 13.2% a year ago.
Reported yield was down 1.6% the pricing environment remains stable and our yield ex fuel surcharge was positive as Fritz mentioned.
Operating income of 35.7 million was 30.3% lower than last year, and our operating ratio, 91.5% deteriorated by 250 basis points from a record of war of 89, we achieved in last year's second quarter.
Compared to a record first quarter or this year they are.
Let me now to key expense items in the quarter.
Salaries wages and benefits decreased 5.6% driven by our actions around cobot 19, including Carlos These cost savings were somewhat offset by our 2019 July wage increase of approximately 3.5%.
And the employee growth related to the nine new terminals. We've added since the beginning of the second quarter last year.
[noise] purchased transportation costs decreased 22.7% compared to last year as a percent of total revenue purchase transportation costs were 6.3% compared to 7.4% the second quarter last year.
Fuel expense fell by 38.8% in the quarter Wall company miles decreased 6.3% year over year.
National average diesel prices were approximately 22% lower throughout the quarter than a year ago.
My name is an insurance expense rose by 39.1% in the quarter, reflecting increased accident severity and that expense line and higher premium costs versus the prior year to put that in perspective of the approximate 5 million dollar expense parents to the prior year 1 million was related to premium increases.
Depreciation expense of 33.7 million in the quarter was 15.5% higher year over year.
This is a continuation of the trend we've seen over the past few years as we've grown our travel network investing equipped to lower the age of our tractor and trailer fleet and made meaningful investments in technology.
Overall operating expenses decreased by 7.4% in the quarter.
And with the revenue declined 9.9%, our operating ratio again deteriorated by 250 basis points.
Our tax rate for the second quarter was 18.3% compared to 25% last year.
Decrease is primarily related to stock compensation impacts from director retirements, we expect our full year tax rate to be 20, 23%.
Second quarter diluted earnings per share a dollar seven compared to $1.40 last year.
For the first six months of 2020, we made capital investments totaling 142.7 million and for the full year. We now anticipate net capital expenditures expenditures will be less than 250 million.
And at the beginning of the year.
Outside of our committed equipment purchases. It purchases. This year, we're continuing to take a very measured approach all those other capital spending.
We believe our balance sheet is strong with 29.3 million a cash on hand in more than 300 million availability through our revolving credit facility in additional outside borrowing sources.
Before turning the call back to Fritz for some closing remarks I'd like to provide a few details of the impact of cobot 19 related cost actions on our second quarter results.
On April 1st we offered all full time work as an additional five days and paid time off and one additional day for our part time workers in light of Cobot 19.
Approximate cost of this action was $3.6 million in the quarter.
Also the 250 dollar employee bonus in the quarter was an additional.
2.6 million, an approximate cost and more than 400000 spent in the quarter on p. supply.
Some of these costs were offset by our temporary elimination of four one k. matching in the core.
That said I'll now turn the call back over to Fritz for some closing comments. Thanks, Doug in closing I will say that the primary driver of our study quarter to quarter margins was the result of not only cost cutting but also adjustments made to our operating model in the very early days of this pandemic and labor intensive business like ours is critical that we match.
<unk> hours to workload and our flexible non union workforce was key in doing this effectively our terminal managers in frontline staff did an excellent job executing on the plan.
The difficulty in controlling hours and costs, while making major changes the procedures cannot be understated.
Virtually everything from our employees clocking in a terminal to dispatching drivers to making the pickup and delivery at a customer locations had to be modified driver meetings safety meetings break breakroom use all these procedures have historically been activities, where our employees are together to close environment, we've had to modify mode.
Most all of our practices at every turn our workforce has been United and really display the desire to take care of one another and do the right thing.
In light of the near term uncertainty around business levels. Our focus will continue to be on health and safety and on execution of our strategy through these challenging times. It will look for to better days ahead for all of US with that said, we're now ready to open the line for questions operator.
Thank you.
This time, if you might you ask a question. Please signal by pressing star one on your telephone keypad and you using their speakerphone. Please make sure. Your mute function is turned off to allow you're signaling to reach our equipment.
Again press Star one to ask a question well pause for just a moment and hello, everyone and opportunity signal for questions.
Our first question will come from Todd Fowler with Keybanc capital markets.
Thanks, Good morning.
Fritz Thanks for the clarification on the change in yield and giving US a number ex fuel you've had a very consistent track record of improving yields and obviously feel some impact here in the quarter, but how do you think about the yield environment going into the back half of the year, even sounds like contract renewals are still pretty consistent with where they were in the first quarter Kent.
Contract pricing accelerates as tonnage improves or is it sold environment, where it's a little bit difficult to go out and get you know more price right now with where the economy is.
No I mean trends have been pretty steady there around pricing throughout all of this I mean, you know the July July trends I would say or you know weve phrase it is probably solidly mid single digit.
So you know I think the opportunities still there I mean, the mix of review each quarter on on on contracts varies. So it's it's hard to say from quarter to quarter, but but generally I mean, something in line with the GR either the everybody put in place earlier in two years ago still seems to be a possible to achieve and and we've retained most of that.
Gee right in line with historical levels, you know 70, 580% of into your eyes seem to stick. So far so I think I think it and I don't see any reason that that wouldn't be the opportunity in the back half things and tightened up but no volume levels will have a lot to do with it as the year goes on.
Okay that helps and then.
Doug I'm not sure. If you comment did you want to share maybe what July 20 was speaking about volume levels and maybe give us the June number as well.
Sure I can go through the quarter I didn't do it in the prepared remarks. So we'll just take it month by month.
So in April our shipments were down 16.2%.
And tonnage was down 12.9%.
Mhm and May shipments were down 9.2% in tonnage was down 8.8%.
And then in June shipments down 4.1%.
Tonnage down 5.7%.
So far in April or so far and dried shipments were actually up 1.9%.
And the way, it's been pretty volatile over the last couple of months weights down in July so tonnage is down to 2%, but still an improvement.
Continuing from what what trend we had in place in Q2.
Okay, and why do you think the weight per shipments down in July do you have any kind of and I know theres been some moving pieces kind of across the industry with weight per shipment, but just any thoughts on weight per shipment into July the impact there.
Oh, it's hard to say I mean, we don't really see.
See it in any particular, you know industry vertical or region of the country. I think just you know maybe it's the fits and starts with the reopening you know some customers you know more confident perhaps in the you know the plan to reopen you know maybe putting bigger shipments through the system, while others you know.
Maybe not are the only see in parts of their business come back. So so the shipments are smaller, but it's been hard to say, but you know there's there's some really good days and there's some days that you know wait slower and it's it's just been volatile, but but all in all I mean, the shipments positive in Jive feels pretty good.
Got it Okay. Let me ask one more than it's been I'll turn it over.
What can you share with us about the operating ratio going forward you know obviously very good there was relatively consistent with one Q, but you know a lot of moving parts with you know the furlough the insurance expense, obviously, the tonnage trends. So anything you can share with us directionally about how we should think about either incremental margins.
Or the operating ratio into the back half of the year.
Yeah, I feel like went a little better positioned to talk about sequential margins and then we were you know March and April.
You know ones.
Trends bottomed and started improving we feel a little bit better looking forward you know given that there's still uncertainty you know getting into the fall months I would say historically if you go from Q2 to Q3, you usually see a deterioration of you know call. It 70 585 basis points.
You know this year with like you said all the moving pieces.
You know we would expect we wouldn't we would hope to target you know a 100 basis points of sequential improvement. This time around and if we did that have put US you know very close to.
The record Omar.
We had last year in the third quarter. So I mean, that's with two months left in the quarter an accident volatility you know always out there you know that's our best guidance, we could give you we would target about 100 basis points better actually.
Okay. That's really helpful. Let me turn it over I'll get back into queue. Thanks for the time this morning.
Thanks Todd.
Thanks.
Thank you I would need to question will come from M- merger with Deutsche Bank.
Thanks, operator.
Hi, Doug he.
Actually it's just a weird quarter. So I think it would be somewhat helpful to just kind of understand how June and July shipments are trending sequentially, it's a little bit of the Nit picky question, but it seems like you guys are winning some market share and I'm wondering if that's giving you.
Confidence or the opportunity to maybe raised pricing.
A little bit more given the demand environment that you guys seem to be.
Improvement in demand.
Big Threepl business you have other types of business wondering if.
If you're you're seeing an opportunity to raise prices to get to that market share.
You mean lead appears to be you guys are winning.
So a mid I I would just jump in on that I mean, I think the pricing opportunity continues for us and were.
Very diligent with that I mean, I certainly is the more analytics that we can put into that the better we're driving that those sort of pricing decisions, particularly when you think about the costs that were adding as we manage through the pandemic scenario. So it's certainly that the we have to be very aware and I'm cognizant of.
That and what the impacts our network now its a the opportunity that weve long held with Saya, we looked at the pricing opportunity versus the the the rest of the industry that remains that I'd pick one of the important things that takeaways from the second quarters, Although we've managed through some real challenges it's fundamental.
Really the thesis for side remains right. So what are what we see is the longer term opportunity maybe in some cases it picks up but in it we don't see a change to that we do see it's an opportunity for us to continue to execute very pleased with the second quarter execution in light of what we were.
Dealing with and that pricing quite frankly falls into that category as well.
And ended up into the third party or.
I meant to the first part of your question I would say that you know really since early in may each week. It seems like you know shipments per day, we've kinda seen a building trend and.
No not every week is up week over week, but I'd say, it's June or July is still a little but little bit better in terms of shipments per day, but yeah that gives us that gives us confidence on the pricing side, you know, if we're saying that kind of volume come back and.
You know weve some terminals, it's it's hard to have enough labor each day with co bid virus and all so you know that gives us.
Lets us in a pretty good position to push price I mean, if we.
I have a lot of congestion in the network in some areas you know we need.
No it wouldn't be a bad thing to run off a little business. If you try to push the price too hard or little bit higher than than you might otherwise so the pricing opportunity still good for us I think.
Okay. That's helpful and then.
Follow for me is do you guys expanded in the northeast I mean, you've got a lot of you know smaller kind of threeq facilities over all over the place and you have an ability to kind of build direct loads that fills and network effect and then one thing the LTL industry hasn't done well in the past is really capture optimize kinda.
That's just where you'll charges and there's companies out there that provide LTL companies kind of better visibility on being able to capture those that's Israel charges. So I'm just trying to understand like is that.
That's the soil charges today is there opportunity to capture more of that.
Money that basically drops directly to bottom line if you can address.
Yeah, I'm, a bit absolutely and what that and what that would drives that really is understanding what the freight is what the a customer situation is what the delivery looks like what services were providing be the list gate or are we a in a situation, where maybe we're making a delivery that sort of extended range beyond.
And our terminal or into a high cost are complex area. All those things are a part of making sure that we get our assets floral charges and it you know you think about it two ways on one hand, making sure you understand what your cost star and when you understand that what would the complexities are the cost.
Mers freight or where the delivery is making sure you charge for that you know likewise to the extent where are you using any sort of specialized assets, we need to be charging for that as well. So it's it's it's an opportunity. It's a data driven opportunity it's about making sure we understand not only whats going all the customer but then.
You know kind of what what does the impact on our operation.
Thanks, a lot.
Thank you. Our next question will come from Jack Atkins Stephens.
Okay.
Mr. Atkins, please make sure your phones now you.
Yeah, sorry about that thing thanks, very much for the time and thanks for taking my questions.
HM.
Fred if you want to take this one.
Just kind of curious if you guys can maybe talk for a moment about the sequential bill that Doug you referenced in the business beginning in May.
And you've seen it continue on through July.
As of July could you maybe talk about what types of customers, you're really sort of seeing.
The most sort of upside from and and are you seeing spillover from the trucking market do you think at this point, just any sort of clarity on sort of where that one of the building strength to sort of most apparent.
So so Jack one of the real challenges with this right now is that the is a call it the variability or the volatility of not only daily sort of shipments and tonnage, but that also what the impact has been on our customer supply chain. So.
One of the interesting things that we've seen as we've come out of this or you know emerged out of the sort of the depth of this is that it's the pet free patterns have changed and they're changing pretty frequently for us. So it's there's not a good call up because you some days you'd say, while three days in a row in this part of the current.
Tree it seems to be doing well then you got a little bit of a pull back maybe there's a pandemic up uptick or perhaps that customers restocked. So it's a I think the what's interesting about what right is going on right now is underlying I'm sort of.
Changing supply chain and they'll but at the volatility that comes with that overall the trends have improved as Doug described.
But what's interesting is that you know that underlying or sort of daily weekly changed continues.
Okay Gotcha Gotcha.
And then I guess for my follow up question, just sort of curious where are you guys think you stand today relative to maybe your available capacity.
Referenced head count excuse me you referenced some capacity constraints or just sort of curious, whereas head count now relative to March in sort of how should I be <unk>, how should we think about that layering back again and you know how much available capacity do you feel like you have in their network today.
To be able to handle.
You know an economy that we hope is beginning to continue to accelerate.
Yeah.
We have brought back and increasing the number of hours at our drivers and dock workers have taken odd since since March and you know I think that there are there some pinch points, where we need we would welcome additional drivers.
And so some labor I think the complexity is we may have a terminal that has a the appropriate staffing, but then maybe there's a cobot issue or it's impacted the local workforce of it you know we feel like we can handle the incremental growth that we've seen but you know there are spots, where we're having to do some recruiting.
Which is not unusual to us.
But we don't have any we don't feel like there is a constraint to capacity at this stage. It's these are the complexities of running in LTL network, where we've got to to adjust.
In both manpower and and assets as we need to match the customer demand.
Makes sense, thanks again for the time.
Thank you.
Yes.
Final question has been answered you may remain yourself from the questioning key by pressing star team again, he would like to ask a question you can do so by pressing star one.
Our next question will come from Scott Green with Wolfe Research.
Hey, Thanks morning, guys.
Thanks, Scott so.
On the yield trends it with weight per shipment now going back down and pricing still remain good should we think about the yield trends in inflecting back nicely positive in the third quarter.
Well I mean I mix is always part of it I mean, we've got no less than a month under our belt, but.
I mean.
If the if we talk continuation of the decline of weight per shipment I mean, that's just the math of it the yield would get better but.
No I would just say, we look more at the backdrop and the pricing action being taken by others and and we know we need to achieve on the pricing side. So you know no for US mix is always part of.
The yield but.
You know we tend to think about it more in terms of pricing and pricing is.
Yeah, good spot to go get price.
Okay.
And then I went out so the shipments are back positive we're still getting price.
You will still down we're lapping some of the cost from a year ago.
Why do you think we're not getting back to margin improvement.
In the third quarter.
Well I mean, you know I talked about some of them you know the incremental costs in the quarter and as Fred said as we start to think about you know if they're spots, where we need to recruit and higher you know that adds incremental costs and then there's some training and then you know there's building up productivity when you hire new people I mean, there's.
There's a number of you know things on the cost side that you know continue to they're not going away just because we're going through a pandemic.
You know we talk about a continued investment in the P.P. supplies across the network.
Yeah I picked in the <unk> the other element that although were shown in some improvements in July you still a lapping those investments we read into second half the year. So those all you know <unk> second half of last year I should say so were you know we should overtime will this will improve and with trends improved through the balance the quarter, maybe we do.
Beat those sort of expectations, but it is it is a volatile world out there and certainly the pandemic and the issues related issues leaves a lot for us to think through in August and September.
Okay. That's fair and then just lastly, Doug you walk through a bunch of just the costs can you just sort of maybe add up the net of the unusual costs you saw in the second quarter in any way to think about the third quarter on some of those.
Well I mean, we gave you.
Take down of the added cost of the P.T. O. The paid time off that we awarded our our employees and.
$250 bonus.
And you know the major call out on the cost reduction was the temporary elimination of the fall on K matching and you know that that offsets you know.
The chunk of it maybe half of it or something but.
We weren't able to offset all of that.
And what about the furloughs.
So keep in mind. The furloughs is we as we scale down the business, we're cutting hours. That's a real driver that says we scaled back up we bring me hours back up right. So if were.
As we as we the business scales, we bring those Ah you know bid.
Particles team or ER Doc team back in place to be able to handle the additional volume.
Yeah, no not totaling I'm, just trying to understand sort if I add up there's some good guys in some bad guys Im just trying to add it up and see what the net of it is and if there's a way to think about that in the third quarter that that's ultimately what we're trying to figure out.
Well I mean within the salaries wages and benefits on you know we just don't break every component out I mean health care you know in the quarter was was more favorable in terms of a good guy because you know you know a lot of employees just not comfortable going in for.
No routine procedures or anything like that a lot of that you know might have been shifted out month to month. So you know we don't we don't think that's you know permanent going away I mean, those those needs you need to be met and that'll happen in August and September and October so.
We just don't breakout the individual discrete items within each reported no cost line on the income statement, we that we'd have to give me a lot more granularity than we typically give.
Okay Alright. Thank you guys appreciate it.
Thank you. Our next question will come from Jason Seidl with Cowen.
Thank you operator, good morning, guys.
HM.
Should we think about residential delivery going forward and sort of how have those trends moved.
In Twoq and Threeq you. It seems like this is gonna be more though.
A a permanent growth area I think for the LTL industry I love to hear your thoughts on it and where do you see the margins on that business now versus your legacy business.
Yeah, we definitely saw an uptick you know through the last two or three months and residential deliveries you know if it was if it was no six or 7% of our deliveries you know going into this.
You know we saw it get as high as of mid teen percent, you know and in some of the weeks.
Probably down to kind of low double digit now in terms of what percentage of our daily deliveries of residential but it's kind of a you know a difficult time to think of though you know to break it apart and think about the long term opportunity. There because you know the programs, we piloted piloted last year around you know our residentially residential deliveries.
Service.
We plan to ramp up this year, but some of that's been installed customers don't necessarily want you know people coming in the house with expanded service offering and things like that so some of that stalled, but I mean, we would want to that business to operate you know as well as the company average and even better going forward.
But we're still looking at the model and our use of agents in that service.
Let's see where we eventually end up on our.
Yeah.
Service level that we're going to be providing the residential area.
Okay.
That's good to know also on the.
A bonus for the employees here that we saw in the quarter.
Cobot continues to drag on as this is something that potentially could be replicated in future quarters.
Well, we were real comfortable with with the 250 dollar bonus and with the awarding of the additional days off because you know those those are variable you know to your point with so much uncertainty out there were really you know more comfortable making moves on the on the variable cost side in terms of compensate.
And so you know any things on the table, but but for now with the limited visibility I'd definitely say were more prone to to think about variable incentives.
Okay that is a key thing with that those moves Jason is really about supporting the employees. In a are you know what immediate sort of way. The additional days those are things that people can take advantage of if they did have a cobot issue either themselves or with the family member and same with and the bonus was a one.
Onetime based on kind of where where the business wasn't we saw the sacrifices and ours is people put in later in the quarter for sure or just through the quarter. So those are things that we just have to think about as Doug described you know it's we're almost real time, you know is what do we need to do to support the team.
No that makes sense, we'll gentlemen, I appreciate the time is always be safe out there.
Thanks, Jason Thanks, just.
Thank you. Our next question will come from Ari Rosa with Bank of America.
Oh.
Great Hey, good morning, guys. So.
It seems like truckload capacity is getting a little bit tighter that's something we've heard on the truckload side, maybe you could discuss how that historically has impacted our LTL and kind of what you see for the prospects.
On on pricing, maybe if truckload capacity does tighten for second half and into 2021, how that might flow through and an impact you got your operation.
Well, it's the tightness is you know over an extended period I'd say you know, we'd probably all agree that it does we do see some you know spillover of those volumes and into the LTL.
And it's a much larger industries. So you know small shifts and truckload supply.
You know impact our industry in a pretty meaningful way. So if it continues and the tightness continues I'd say, we probably expect to see some of those heavier volume slipped down into LTL.
On the pricing side, you know our industry's just you know it's been rational for quite are quite or while right now and we go out consistently year on year out and try to get our rate increased to match the cost inflation and achieve the returns we need to achieve so you know there's been less consolidation on the truckload side. They don't they don't seem to have that luxury there there.
Pricing is much more volatile you know they get it when they can get it in.
So it doesn't we don't really viewed as impacting our ability to go get price, we want to be consistent approach our customers in a professional way each year and discuss the environment.
And get the need it right.
And we have we're able to do that because probably the consolidation that's going on in our industry.
Supply doesn't come and go as easily as it doesn't truckload.
Got it that's very helpful. And then I wanted to touch on the claims in insurance expense, which it looks like it took a step up in the quarter one of the things we've heard from other carriers is that just less traffic on the road less congestion has actually resulted in kind of look lower claims and insurance expense do you.
Like the level from second quarter to kind of continue going forward into third quarter and beyond or or is this anomalous for some reason that maybe is less there are some from the financials.
This is just the volatility that you see in that line from time to time, you know when you carry a deductible of $2 million and you know you have around of accident severity. It impacts you know any given quarter that way, we wouldn't expect necessarily to see that in the next quarter and and moving forward about of the 5 million this year over year.
Your increase about a million of it you know was related to the premiums and that was around our insurance renewal that we completed in February.
And that piece to exit, but the rest of it as you know that.
I won't say, it's unusual it's just part of the business there's volatility in that line.
I wouldn't model for each quarter.
Got it that's helpful. And then just the last thing and it's a little bit Nit picky, but the other line on.
Below the line not other income maybe you could talk about what was there and if he's had any gains on sale in the quarter.
Yeah that that's an adjustment that's you know made related to our nonqualified deferred comp plan.
And you know it was a little larger this quarter because of the volatility in the market, but I wouldn't expect it to remain at that level necessarily it's usually a couple hundred thousand dollars either way each quarter.
Okay.
I thought it was a bit.
Got it understood very helpful. Thanks for the time.
Sure.
Thank you. Our next question will come from Stephanie Benjamin with Suntrust.
Hi, good morning.
Good morning.
Well I touched on your northeast expansion, maybe what you've been saying in some of those newly opened terminals on you know anything you want to comment you in terms of improved productivity at those terminals you know how that progressed throughout the quarter positioning left some local account penetration just any color on front.
That reach out would be helpful. Thanks.
Well, it's a it was a region there certainly was impacted by the cobot issues, yeah different port points of Todd during the quarter, particularly in April.
It's.
Certainly trended I'm, a little bit better over the along with the rest of the business through May and June.
The productivity initiatives that we have deployed across the network of also benefited those that region and those terminals and we've been pleased with that and that's a lot of why we were we feel like we've been able to transform some of those costs to be more variable match the underway.
<unk>.
Shipments in tonnage so that that part of its made good load averages had been good but it's still a challenge there I mean, it you know the environment with the volatility we saw obviously, we didnt hit our overall goals there simply because of the environment or read, but I think that I'm pleased by.
Is what we did were what we were able to execute on in the quarter I think that translates into long term success in that market. So I think it it's it bodes well and I'm pleased with the execution I think as we grow out of this you'll see that they'll continue to improve.
Got it and then in terms of some of those technology investments and I know that are rolled out in 2019 any plans for some additional investment that seemed like in the back half. The 2020 anything that we should be a whereas thanks.
No I think the biggest the biggest thing that is would have an impact is it frankly, it had an impact in the second quarter, but it's it's difficult to the highlight other than to say if you we saw from productivity in our ability to manage our labor costs through the quarter. That's a reflection of the return on the those investments in technology, So I think our ability.
Need to adjust that was utilization to those those tools. So I'm excited about that going forward you know I think the the next versions of these investments are sort of additional tools are in had sort of visualizations there'll be an introduction of at handheld that will Uh huh.
Replace existing handheld as well and integrate with some of these software tools that we put on the put in place and our and frankly, our touch touchless sort of interactions that weve social distance sort of processes will be a enhanced further as we roll out a handheld in the second part of the year. So it's.
As we continue as an organization to maximize these tools I'm excited about what the opportunities is for us to continue to drive productivity and drive those incrementals that are so important based on all the investments we've made that only in technology, but also in their footprint.
Got it thank you so much.
Thank you I would ask question will come from David Ross with Stifel.
Yes, good morning, gentlemen.
Morning.
Hi, Good morning, first what do you think the biggest long term benefit to the business.
You will be to come out of the Crazy last four months. So we've seen maybe it was a surprise or maybe just certain positive trends it got accelerated.
Well, David <unk>, let's say one of the things if we just started the year and said you know we've talked about execution was a key.
Part of our business plan for the year and certainly at the beginning of year, we'd we'd never considered the concept of the impact of the pandemic that we saw we talked about executing in interest instituting all the technology investments, we've made and what are the things that we learned in the second quarters, we stress tested those.
Right. So at the beginning of year I think I would have told you a boy I wanted to see those tools work in a up market are improving market.
And I think one of the things that we were able to do is hit our productivity goals in the second quarter by utilizing those tools to help better plan and manage our labor costs. So that the as we move out of this and grow out of this pandemic I think one of the exciting things that we saw is that we learn what we can.
Do from an operational perspective, it operational execution perspective.
Take care of the customer take care of our employees and as you look to a more normal environment whatever that is I think the the foundation that we built this year translates into the future. So I think that those are it's a little bit of a qualitative answer but I think that that's really what you learned in a quarter or like this.
Sort of business situation that we're red would you know sort of ground falls out from underneath your you've got to adjust quickly. We prove we could do that maintain profitability that business and now being a position we can grow out of it. So I pick that that's that's what's it to me I'm optimistic looking forward.
And did you find any gaps or glitches that emerged that you were able to fix that you don't have them. If we do get a surgeon volume.
You know on an operational one of the things is particularly impressive as we put in our sort of social distancing operational policies in a matter of days and then we.
As the quarter develop we enhance those you learn some things as you go so it's kind of a continuous improvement sort of process. Some of the things you learn out of that are things that you hope to longer term fully operationalized. So one of the challenges that we have now is that we've we're social distance, where a company that as long.
Really value communication with our employees and connections with our employees will have a driver doesn't come come into a terminal right now to maintain social distance that sort of interaction doesn't happen right. It's we've got to figure out other ways to communicate with the employees indeed to maintain that culture and that sort of support for that.
Team.
So that's something we're working on it and looking at different options. That's part of its going to be technology, driven part of its is gonna be getting past the pandemic.
I think the other element that we've learned through this process is it the line haul network, we've talked about as an opportunity around optimizing that and certainly as we have become more of a national player optimizing that line haul network. It helped us in the downturn here, because we'd be able to reroute around sit.
These are locations that maybe you have been impacted well you take those sort of key learnings in tools and that that's something you apply in a more normal world going forward around how do you optimize the network to support the more profitable freight or the better markets that you want to compete in so I think that that's something we learned in.
<unk> in the downturn that will take advantage of going forward.
Thank you.
Thank you I would ask question will come from Ravi Shanker with Morgan Stanley.
Thanks, Good morning, guys.
So a your Australia about a deal capacity if I can I ask you listened to a question about LTL capacity I'm. Obviously, there is there's speculation or talk of capacity again in the marketplace on the deal side, how much do you think that's impacting smaller players in the L. Steele side as well as the same time.
There's also been a news of new entrants in the L. Steele space.
Both from a acid based carriers is a bit as a asset light carriers and I'm wondering loggers embedded or just got a bunch of financial assistance recently, so when you look out six to 12 months do you think a LTL supply overall is entering or exiting the marketplace.
Well.
I don't know, it's kind of hard to say I mean, you could you can look at it from the couple of different angles, I mean overtime. We've seen continued consolidation right over the very long term.
The environment has gotten more and more difficult. When you think about you know insurance cost technology requirements.
The cyclicality of our business puts pressure on carriers, if their balance sheets, you know not able to withstand that so you know over the last few years, even as good as you know the freight environment was you know in 2018. For example, you know we saw capacity you know, leaving 2019 in the form of you know small company failure. So.
You know the pressures that are out there for truckload or you know they impact all of us as well.
Those and those few that I mentioned to you. So you know it's hard to say I you know the new entrants I mean in terms of building a national network Nobody's done that.
Since deregulation nobody set out to build a new national network. So you know I think as we fill out the geographic map and Weve built to near fully 48 state covered with our own facilities. There's a huge value in that to us because you know that's something that would be hard to replicate.
Understood and if I can follow up in one of the audio responses are kind of on the drags on margin and you guys have been pretty Taylor with some of those is transitory costs because its go bad.
But those seem like kind of fairly like as a transitory and also not huge numbers. So it begins again remind us like what's the boss do gapping or little or a in a meaningful way in the coming years kind of what's the Pos do low eightys or better a is that primarily.
Topline driven or we're going to what geography there.
I I think Robbie from a it's it's several months is size strategy first and foremost a we talk about the pricing opportunity when compare that to the market getting paid for the great quality and service you get with dealing with or working with side.
I think its capitalizing on the northeast expansion developing those markets, both inbound and outbound.
The the really exciting thing about the northeast is it gives us an opportunity to leverage our legacy networks are the pre northeast expansion 34 States. We add the northeast do you have the opportunity to sell you know for a place like Dallas in the northeast and that's incremental to Dallas, that's incremental the northeast so the value that sort of network diner.
NAMIC you pouring that additional revenue over a you know a fixed cost basis, both at a corporate level. But then also you know the Whitehall that work do you have the opportunity to optimize that you know and then you look beyond the northeast and I think the other really interesting thing about size long term op.
For today, and it's and it's quite frankly is still there.
If we have 169 terminal network and you look at some of the other larger.
Competitors that have similar sort of service offerings or ones that are a little bit better than ours, perhaps or benchmark, a little bit or longer term success. If you will those those networks are anywhere around 200 terminals or above and so we have the opportunity to as we generate returns in the bay.
Business reinvest in real estate is.
Markets, where we can build or additional density for us move closer to the customer I think it's a third element of what drives value for Sai overtime. I think you add all those things up but I think it says yeah, we have the opportunity to drive the oh or into the Eightys and most significantly.
Second quarter was a tough quarter, but it was one about execution in a really difficult environment and I think that that performance you translate that into what maybe as much more normal environment going forward I think the it's pretty compelling opportunity for us.
Understood. Thank you.
Thank you our last question will come from Tyler Brown with Raymond James.
Hey, good morning, guys.
He teller.
Hey, Doug So I'm sorry to beat on this but I do want to make sure that I've got it so on the P.T. O'dea Grant.
That's 3.6 million drag specific to Q2 or does it basically linger and you'll make it similar accrual in three and four.
That's right. It was the 3.6 I spoke of was for the Q2 piece of it.
Will there be another accrual that when three and four reside at one time accrual. Okay. So it's across the rest of the year when we announced it so yes three in Q4 he will have another.
Okay. So and then real quickly on the $250 bonus. So Fritz I thought you mentioned you are paying that in July but it sounded like you took again that accrual in Q2 is that right.
That's exactly right Tyler.
Okay. Thanks for clearing that up and then so for US you actually talked about this on the last question, but you guys talked about examining capex pretty hard this year, but are you pausing any of those bigger real estate purchases are those development projects and I know you guys had been working on are using this as an opportunity to may be continue doesn't background.
So weve the two big projects, North Atlanta, and Memphis or are in works and we're charging on I think what was really important about second quarter is maintaining profitability in keeping that balance sheet available to us to take advantage of available real estate that may become available.
We're if that if the right property becomes available in the right location. We're in a position we can execute on that so that's that's where we wanted to be the beginning in the quarter, we exited in that way and so.
So right now we don't I think our comments are we don't have anything that is in the pipeline immediate but if it certainly if it became available we'd be audit.
Right right. Okay, and then my last one so is it right to think that you won't add much this year by way of door capacity, but you are set up next year.
Capacity.
Yeah, I mean, well you know the new Memphis facilities, an incremental four this year in terms of what we're exiting and next year, you know Atlanta will come online for us towards the end of the year and there may be some other smaller things it.
Following the pipeline next year, you know, we've got longer term visibility to.
Okay I appreciate it thank you.
Thank you.
Thank you there no further questions in the queue at this time I would now like to turn the call back over to France for closing remarks.
Thank you for everyone for calling it I'd just to emphasize were very I'm pleased with our performance in a very challenging second quarter. Most significantly we exited the quarter are focused on maintaining the profitability and keeping our balance sheet and position that we can execute on the law.
Term opportunity for side and would emphasize that we feel very strongly that once the we did the economy. It has moved past the pandemic period, we're in a position where we can capitalize our longer term strategy. So we don't see a change to that and we're excited about the opportunity that is out there for us. Thank you.
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