Q4 2020 Saia Inc Earnings Call

Please standby.

Good day and welcome to the spire, Inc. Hosted fourth quarter and full year 2020 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Douglas Cole. Please go ahead Sir.

Thank you Lauren good morning, everyone welcome to <unk> fourth quarter 2020 conference call with me for today's call are sized president and Chief Executive Officer Fritz whole spread.

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 risk factors that could cause actual results to differ now I would like to turn the call over to Fritz for some opening comments.

Good morning, everyone I'm pleased to welcome you to this call to review, our fourth quarter and full year results. I'm also pleased to take this moment to say goodbye to 'twenty 'twenty.

Well last year brought all all of us plenty of challenges both professionally and personally we learned that we were capable of pulling together as a team to deal with the crisis not always we adapt quickly to changing conditions across our networks brought on by COVID-19, we did so while maintaining a high level of service in 2020, we delivered 98 per cent of our shipments are.

Despite experiencing periodic shortages of employees on any given day due to due to the pandemic protect.

Protecting customers' freight remains a priority for our employees and our 2020 cargo claims ratio of <unk> six 6% was a record.

I'm very proud of our team for a variety of the type of service for our customers and pleased that we can do our part and deliver essential goods in these difficult times.

It is exciting today to be able to discuss our record fourth quarter and full year results business volumes really never track historical trends after the downturn in mid March and then swing rebound in April and they continued into the fourth quarter and the fourth quarter daily shipment activity remains steady and shipments per workday for the full quarter was three.

6% compared to last year wafer shipment rose two 3% for the full quarter in tonnage per work day increased 6% year over year.

Our operations team executed extremely well in 2020, and we're well positioned to handle better than expected late December shipment volumes shipments rose three 5%. This december against a difficult year ago comparison, where December 19, 2019 shipments increased by 10%.

Reising environment remains stable throughout the pandemic and we continue to focus our pricing strategies and identifying the alcohol mix of business, while ensuring that we're compensated for our strong service execution. If anything the continued tightness in the driver market made worse by the pandemic and the increased cost of purchase transportation is made carriers.

More focused on pricing in the face of these cost pressures.

I'm extremely pleased to report that revenue per shipment, excluding fuel surcharge rose six 5% in the fourth quarter. Despite fuel surcharge revenue being down 13% year over year, we still managed to approve revenue per shipment, including the surcharge by three five per cent.

This improvement in revenue per ship. It plays a key role in improving margins and I'm proud to report that our fourth quarter operating ratio of 89, 4% is a record.

Our revenue in 2020 was a record $1 8 billion, surpassing last year's record revenue by 2% operating income kind of also grew by 18% to a record 180 billion.

I'm now going to turn the call over to Doug for a few more detailed comments about the first fourth quarter and full year results.

Thanks breads.

Fourth quarter revenue was $476 5 million up $33 4 million or seven five per cent from last year.

The year over year revenue increase was the result of 6% growth in tonnage per work day.

Our yield excluding fuel surcharge improvement at four 1% and a six 1% increase in length of haul.

Revenue per shipment grew three five per cent to $246 88.

Offsetting these tailwind fuel surcharge revenue decreased by 12, 9% and was 10, 5% of total revenue compared to 13% a year ago.

Moving now to the key expense items in the quarter.

Salaries wages and benefits increased three 6%. This was largely driven by our employee utilization of paid time off in the quarter compared to the prior year, you'll remember that we offered our island on hourly employees and additional five day as a paid time off in 2020 to help them deal with the personal and family issues arising from the COVID-19 crisis.

Health insurance costs were essentially flat year over year with inflationary costs being offset somewhat by lower usage of benefits by our employees.

Purchase transportation cost increased 42, 1% compared to last year as a percentage of total revenue purchase transportation costs were $9 four per cent compared to seven 1% in the fourth quarter last year.

The increase is primarily tied to an approximate 76% increase in purchase truck and rail miles compared to last year.

In the quarter, we face the pandemic related driver shortages in some markets, we're able to meet the stepped up demand with purchase line haul capacity.

Purchased transportation miles were 16, 3% of total line haul miles in the fourth quarter.

Fuel expense fell by 37% in the quarter, while company miles decreased 2% year over year net.

Final average diesel prices were approximately 20% lower throughout the quarter and in the same period a year ago.

Claims and insurance expense decreased by 27, 3% in the quarter, reflecting decreased frequency and accident severity in that expense line, serving to offset the higher year over year premium costs.

To put that in perspective, the $3 4 million expense decreased compared to prior year would have been favorable by another $1 5 million if not from premium increases we experienced.

Also to illustrate the volatility in this expense line I would note that claims and insurance expense was down 24% or $2 8 million sequentially from the third quarter.

Depreciation expense of $34 2 million in the quarter was seven 2% higher year over year.

This is a continuation of the trend we've seen over the past few years as we've grown our terminal network investing in equipment to the lower lower the age of our tractor and trailer fleet and made meaningful investments in technology.

Overall operating expenses increased by $2 five per cent in the quarter.

With a revenue increase of seven five per cent of our operating ratio improved by 440 basis points from a year ago.

Our tax rate in the fourth quarter was $19 eight per cent compared to 18, 1% last year.

Our full year tax rate was 21 five per cent.

Fourth quarter diluted earnings per share were $1 51, compared to 81 last year.

Moving onto the financial highlights of our full year results as Fritz mentioned revenue was a record $1 8 billion and operating income of $183 million was also an annual record.

Our operating ratio for the full year improved 140 basis points to a record 91%.

For the full year 2020, our diluted earnings per share were a record $5 20.

Or is this $4 30 in 2019.

In 2020, we made capital investments totaling $231 1 million.

We reduced our net debt position by $95 million in 2020, when we entered 2021 was $25 3 million cash on hand.

In 2021, we anticipate capital expenditures will be approximately $275 million.

Also at the beginning of 2021, we implemented a wage increase across our work force, which average approximately three five per cent.

Oh now I would like to turn the call back to Fritz for some closing comments. Thanks, Doug just a couple more comments before we turn this open open this up for questions 2019 was a year of investment across the company, perhaps most notably the northeast for 2020, our team was focused on operational execution with an emphasis on it.

Grading the new operations into the broader network.

COVID-19 provided an unexpected challenge, which tested our execute execution, particularly in Q2, we emerge from the COVID-19 business decline and posted records in both Q3 and Q4 throughout our management team stayed focused on the safety of our employees and customers, while continuing to deliver differentiated service and <unk>.

That is funding our customers freight shipping needs.

COVID-19 is a continuing daily challenge across our 169 terminals, providing a level of unpredictability for both our customers and our operations. We expect these challenges to continue for the near future at the same time, our strategy extends into 2021 with a clear focus on execution and delivering the server.

Our customers expect this focus supports the ongoing effort to optimize our mix of business, while being compensated for all the service that we provide.

In 2020, we opened a terminal early in the year near Burlington Robot and in the fourth quarter, we moved into our new 200 door Cross dock facility in Memphis, Tennessee.

Memphis terminal is 60% larger than the fill facility replaces and should accommodate significant expansion over time.

As we think about growth in 2021, we plan to open a new terminal this quarter to service customers in the Wilmington, Delaware area and plan to open an additional four to six terminals across the course of the year, including our northeast Atlanta terminal targeted for the fourth quarter. These terminals will enhance our service across the geography will also from.

Whiting, reaching to new markets as we seek opportunities to build our long term pipeline of coverage in 2021 and beyond.

As 2021, our 2020 highlights despite the operational challenges size positioned to continue to execute our plan into 2021 and beyond with that said, we're now ready to open the line for questions operator.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off July youre sticking on to reach our equipment again that is star one to ask a question. Our first question comes from Amit Mehrotra retro with Deutsche Bank.

Thanks, operator.

Congrats on the results.

I guess I had I had one sort of shorter term question and maybe one longer term question. So just on the on the shorter term side I Wonder if you can give us January shipments and wait wait trends.

You know just kind of how it feels out there from a demand and customer perspective.

And then also you kind of provide a walk trend sequentially I know, it's usually deteriorates fourth quarter first quarter, but if you can give us a little bit about color there as well thanks.

Sure Hi, Amit.

You should everybody should have the October and November trend numbers, but December shipments were up three 5%.

And tonnage was up five 2%.

And in January shipments were up one 1%.

Tonnage up five 6%.

So the January numbers are again against a pretty healthy comp like December was January shipments a year ago or up 8% and we also implemented a G. R. I on January 18th of approximately average approximately five 9% across our tariffs.

We're seeing a little bit of impact of that on the shipment side, but weight per shipments up nicely and in ROE in tonnage and hopefully improving our mix.

And then the vor comment sequentially.

Yeah, I mean, historically like you say I mean, it's.

It's been a pretty tight range historically.

It's gone back and forth, sometimes weather dependent.

But we'd say historically adjusting for accidents and severe weather, we can it's probably flattish quarter to quarter, and we would hope to be able to do that again this year.

We gave the wage increase on January one and.

You know, we're seeing a little bit of what.

We're seeing fuel cost trend back up a little bit but.

We would hope that we can keep it steady with where we operated in Q4.

Okay, that's encouraging and just I guess more from my longer term question, which I guess is more imported anyways.

Fritz if I look at the revenue per shipment revenue dollars per shipment.

It's quite a bit lower than than other non unionized L. T cells I mean, it's it's over 30% below without doing over 10% below it ex deals doing can you just talk about I know that's a focus of you guys from that from a pricing and mix perspective, and a service perspective I was just wondering if you could talk about.

What the actual opportunity is to narrow that gap and you know now.

How do you have an expanded or increasing footprint.

And then what should be kind of the reasonable expectation there in terms of your ability to continue.

Continue closing or narrowing that GAAP over the next couple of years.

Sure.

When we look at that and we highlighted in the call comments, we were very very pleased with our service performance in the second half of the year through the pandemic. The claims ratios of record low operations team did a phenomenal job taking care of the customers.

That does though is that says that when you look at those national carriers.

As you pointed out where we're at a discount.

That we have.

That sort of level of service, we need to get paid for it because that is service that is some of the best in the industry will.

We're doing a great job for the customer and it's expensive to run this business.

Well a lot of cost tied up in this as we point out none of this should be free. So we've got a charge for it and improve the mix of business to find those customers that really value that outstanding service that we've been able to deliver so as I think about it.

It's not going to happen overnight, but I think we continue to work pretty hard at closing that gap against those larger national.

Carriers and I think you see the performance we had in Q4 and that's that's the playbook, we got to keep executing that focused on.

Getting paid for the service that we're providing so you know.

I think we're we've shown that we can do it and now it's we've got to continue to execute that plan.

I mean, I would add to that you see evidence of our work on mix and also the benefit of the expanded geography. If you just kind of compare our yield performance in our revenue per per bill performance, so yield ex fuel surcharge and the force in the fourth quarter was up four 1%.

We actually grew revenue per shipment ex fuel of six 5%. So our length of haul was about 6% longer year over year and the mix opportunities that Fritz mentioned.

If that continues to help us grow revenue per bill in excess of our yield growth at all.

That'll help too.

Okay. That's helpful guys. Thanks, a lot appreciate it.

Ex Smith.

Our.

Next question comes from Todd Fowler with Keybanc capital markets.

Hey, great. Good morning prints good morning, Doug.

First in your prepared comments at the end when you kind of went through the cadence of the last couple of years, you know the growth youre shipping into to execution.

We obviously see that in the last couple of quarters as you think about going into 'twenty. One 'twenty. Two you talked historically about 150 to 200 basis points of margin improvement on an annualized basis. It was 21, a year, where you are in that range, that's something better than that range given the investment that you've made can you just how do you think about the cadence of that.

Our longer term at this point.

Yeah. Thanks, good question.

One of the things that we focused on as you rightly point out is execution through the pandemic. So if we are in.

We felt like that has gone we've executed well in that environment and as we get to.

'twenty 'twenty, one and beyond it's really about how what's the overall freight environment looks like.

There continues to be favorable.

I think we can exceed this the the range that we've talked about historically 100 to 150, I mean, we should be above that.

Where that goes how.

Drawing the market has yet to be determined but I.

What's important right now is that we were in a position where we continue to focus on pricing.

That's a favorite as we know a flow through to the bottom line pretty quickly, but we're also proven that we can execute so I'm excited about the terminal openings, we have so I think that that.

We should be able to absorb that without really being a drag on our sort of profile now certainly if we had to accelerate because there were opportunities that were out there we would do that but I think ultimately I think we are in this nice range, where you know the.

The market is favorable.

We see growth opportunities the pricing initiatives are critical I think we can continue to improve and likely be above the range that we've historically talked about.

Yeah, Okay, that's great that's really helpful.

And then just from my follow up.

Can you talk a little bit about how your philosophy and your thoughts on using purchased transportation structurally it's a difference between your model and old Dominion and obviously you know in an environment like we saw in the second half of 'twenty.

Truckload line haul rates are moving up you know there can be some impact on the margins. There. So how do you think about you know the right mix of purchase transportation network in either a P and bringing that down over time or maintaining at a certain level. Thanks.

Thanks, Todd so.

Doug and I'll kind of combine on this answer, but I'm going to start with the leading sort of focus that we have and we are a margin driven company. So we had to we utilized more purchase transportation in the fourth quarter.

To meet customer expectations meet service requirements.

We price it the right way, we found the P. T that worked for US and was cost optimal. So we built that into an 89 four or now over time, certainly you want to look for ways to.

Enhanced leverage our own assets, where we can but ultimately we're going to make a decision around driving that or if we can achieve our O our targets and need to use <unk> to do that we will but certainly.

In time it is important that we find ways to leverage our infrastructure.

Yeah, Yeah, I would add Paul P. T on the truck side I mean, certainly saw a lot of price inflation last year.

Day, we buy it with some committed carriers, we didn't feel the extreme volatility in them.

Rates I mean in Q4.

Our truck pricing year over year for truck miles on the PT side was up low single digit rate. So that we had some carriers come to us and we did have to.

Pay higher rate increases with some but on average we werent that exposed in any way to the swap market and you know our rail pricing year over year as favorable I mean, we couldn't get as many rail miles as we want it probably but.

That's a very cost effective way to deal with a longer length of haul that we've got these days.

Okay. So it sounds like if you're flexing up and you have to use more P T.

We saw just in the fourth quarter, you were able to get compensated from your customers as a result of that that at least at this point.

Right and I mean normally you'd see that the highest usage for us in the strongest part of the year historically, the second and third quarter, we're using P. T. Historically in those time periods to meet the seasonal demand and then you have vacations in the second and third quarter. So some of your own capacity is not available. This.

Year that we saw kind of the opposite I mean things dipped in our usage dipped in Q2, but then when business came back strong in Q3.

<unk> P T to satisfy that demand and it didn't really tail off like historically you see in the second part of the fourth quarter. So we.

Again had to use P T, but to your point, yes, we were able to price effectively and make it work for our service.

Didn't deteriorate, because we were using P T.

Got it okay. Thanks, so much for the time this morning guys.

Thanks Todd.

Our next question comes from Scott Group with Wolfe Research.

Hey, Thanks. Good morning, guys can you talk about the the renewal trends in the quarter and then maybe just help us a big increase in weight per shipment how to think about yield trends either in January or first quarter. However, however, you want to think about thank you.

Yeah.

Yeah. Thanks, Scott on the contractual renewal side I mean, we saw a nice bounce back in Q3 and Q4.

They were up six 9% on average in Q3 and six 6% in Q4.

To us that's a reflection of the shipper mindset and you saw it too in some of your survey work I mean, the shippers expectations are for higher rates really across all modes.

Bounce back in the second half and we felt that non renewals.

So far in January I'd say on the yield side I mean, you know a continuation.

What we saw in the latter part of Q4, I mean, I would say.

Low to mid single digit yields are.

Probably a level that we're in and.

It's a level, we're seeing in a level, we need to see and maintain.

Our cost inflation is.

On a per shipment basis, it always seems to always be three or 4%. So we've got a price to.

Get that and more to improve margin.

Scott I would add to that around weight per shipment I mean, we're very focused on you know.

As we look for the optimal mix of business, we're looking for ways to optimize or take.

Take advantage of <unk> drive the weight per shipment into better categories of free so it that's.

So I'll kind of a combination for us so its underlying rates and it's also about driving the mix.

Okay, and just to clarify when you talk about low to me that's on a per hundredweight basis. So obviously, a good amount that are on a per shipment basis right.

Yeah, the yield commentaries yeah.

On price coming in.

Our work on index and the way, we're saying, we hope to grow revenue per shipment at a better rate than that.

And then can I get the driver pay increase in January I think you guys typically do it later in the year is it just pulled forward or do you think that we'll see two driver pay increases this year. Thank you so Scott its.

We always want to be competitively paid rights are can be a competitive barriers.

We put that in place we put in we did not have one a similar one in 2020, however, I would stress that we did add additional.

Sorts of compensation either in paid time off for a onetime bonus effectively changed the compensation mix for drivers last year.

So we put it in place this year.

We will continue to focus on competitive pay so you know could we make a change farther into the area. It could it could happen, but that remains to be seen ultimately we know it's inflationary environment out there we know its a competitor a driver the driver environment. So we have to pay competitively so.

We felt we monitor that pretty closely and we'll make adjustments as we need to enter the year.

Okay. Thank you guys appreciate it.

Thanks Scott.

Our next question comes from Jack Atkins with Stephens.

Great. Good morning, Thanks for taking my questions. So firstly, I guess kind of kind of going back to your commentary around the plants from the network. This year, you know with that but the one terminal opening in the first quarter and maybe four to six more.

Over the remainder of the year, how are you thinking about.

New versus existing markets with with those numbers and is there a way to kind of think about that expansion that you plan to sort of make to the network. This year on a terminal door basis, just sort of I'm just trying to get order of magnitude increases in 'twenty, one versus 'twenty 'twenty if that makes sense.

Yes, so the way I would think about it.

The terminals that we're we've got on the docket, if you will they're gonna look sort of.

Like on average like the rest of the site as network again, an average right. So northeast Atlanta will be a larger facility that will be a exists.

Existing obviously, an existing market to some extent book, but were also splitting up Atlanta, a little bit so the idea and why the math makes so much sense for US. There is we actually can probably reach customers as market that where historically, we haven't been able to service appropriately. So.

Is it new.

Yes, and it's also an existing so it's a little bit of both Wilmington, Delaware is.

Effectively a new market, we services, a little bit, but not very well so that would be a.

Sort of an incremental opportunity in the other ones that we're considering are going to be sort of a <unk>.

Give us some mix of new markets and ones that we are servicing but with.

In the outer range of what makes sense right. So.

I would think the best way to think about that as sort of an average sort of sire terminal size of northeast Atlanta, It will be a larger one and some of the others will likely be smaller.

Okay, Okay, and also and also Jack just to frame it up a little bit for you, even though we only add.

One new opening in 2020, our door count was actually up.

A little more than 4% for the year. So we relocated you know there was a press release out a couple of months ago on the Memphis relocation into a bigger facility, but we also have four other relocations in the ear. So.

The door count grew a little bit, but it should be in excess of that if we're successful this year.

That's very helpful. Doug. Thank you for that and then I guess from a follow up question is you guys are thinking about you know the day.

Different line.

The line items from a from an expense perspective this year.

How how are you thinking about inflation.

Inflation with regard to cost per shipment you know.

In 2021 can you maybe help us kind of put some brackets around that is from sort of thinking about this year just because there are a lot of moving pieces with P. T and in labor, obviously, what youre expanding your network too which should help.

Yeah, I can give you a little color on that I mean, the cost per shipment.

It was a little lower than the normal historical trends in 2020, but if you go back to 2019 cost per shipment was up about three 5%.

Like I mentioned earlier, that's just kind of the inflation, we're seeing out there, but youre going to continue to see that.

Claims and insurance line.

Lift up.

Let frits mentioned salaries wages and benefits.

Not only the wage side of it but you've got benefit inflation pretty consistently year in year out. There. So you know I think something in that.

3% to 4% range on a per shipment basis as it was kind of going to be the trend.

Okay. Okay that makes sense. Thanks again for the time guys I appreciate it.

Thanks Max.

Our next question comes from Jason Seidl with Cowen.

Thank you Alberto good morning, Thanks for taking the time I wanted to talk about your business mix sort of how its breaking out between consumer and industrial.

And if you expect that to change as we move throughout the year as the Australia economy could come back.

Yes, I mean in terms of changing we saw a little a little bit of change really in the middle of the year with the pandemic.

We saw residential.

<unk> deliveries.

Up into the mid teen range on a percentage of our shipments, but that's back down and Uh huh.

High single low double digit range now.

In terms of the business.

Industrial for US is still 60%, 65% of the afraid if you consider.

If you walk our dogs and get a look at the freight we haul.

You might see that overtime grow a little bit because of the.

Increasing willingness of folks order heavier weighted goods online and they need the delivery of those items into neighborhoods and such like that but.

I don't see it.

A big shift.

And the trends other than that.

Okay fair enough and I wanted to talk a little bit about <unk>.

Yes.

I would think volatile.

Good thing for pricing in the wholesale market, which has already been favorable over the last decade or so wanted.

I wanted to know sort of how.

How often sire range EPS rate marketplace.

Just out of curiosity is there agreement.

With TST overland about how large is that I would assume it's relatively small.

Yeah, So just a general comment I mean.

We are familiar with tsi and.

Specifically TST, we've been working with them really well in the last several years.

A well run company.

Good good solid performer and certainly you know what.

The best in their.

Next steps with <unk>.

Their acquisition.

We would see EPS freight.

You know kind of in the marketplace right. So you knew that it was a business that maybe.

Maybe didn't have the same level of investment as the rest or focus that the rest of the L. T. L carriers had so you know I think that impacted them over time. So we were familiar with them in that that regard.

We don't think at least in the short term that will have any.

Meaningful impact on our.

TST relationship.

Going forward so it you.

It remains to be seen what the impact is on the broader marketplace, but <unk> zone, well run company focused on the right things and.

We wish them every success.

I appreciate the color gentlemen, thank you for the time and be safe out there. Thanks.

Thanks, guys.

Our next question comes from Jordan Oliger with Goldman Sachs.

Yeah, Hi, just a follow up on I'm sorry.

What do you think about the year, especially taking into account the terminal openings across the elevated demand.

Now that you'll be able to handle more of your own staffing or what are the drivers there or what happened here.

Year, and maybe that starts to add up.

Now relative to the rates per se now or where do you think that.

Our next day.

These levels through the course of the year.

Okay.

Well I mean in terms of the current year, you know I would expect that to moderate a little bit versus the use of do we saw that to deal with.

The ramp up out of the shutdown period last year during the pandemic.

Over time.

If you don't.

I M. P T I mean, youre going to pay for it somewhere so it's not like we avoid the cost it'll shift up into another line. If if you run it with more of your own equipment your own drivers and and there is inflation there but yeah.

Yeah, I mean naturally as we build density in.

Load average improvement, which we saw 1% or 2% load average improvement in the year.

We'll be able to run more of it was with our capacity over time.

Okay.

Talking about the terminals and stuff.

The way the market's ability to access people when your terminal value pretty good in the markets that you're in.

I don't have that availability.

Well, yeah to the extent that you can see the capacity, you're bringing on and the driver market. There's been a challenge anyway, and then you had the difficulties to pandemic brought is a that's a challenge, but if we can hire you'll see us using more of our own power over time.

Great. Thanks, so much.

Our next question comes from Tom <unk> with UBS.

Hi, Yes, good morning, I wanted to see if I could go back to some of your comments in December and January tonnage and just see if you could offer some thoughts of whether you think that maybe January is representative of what you would expect or you did refer to did I get the G. R I impact than maybe it's been a difficult comp.

Do you think that.

It was January a little bit of a one off or do you think that kind of.

6% tenant growth your day.

Realistic way to look at what you might expect Inc. First quarter over 'twenty and 'twenty one.

Yeah, I mean, it's hard to say.

If I look at it sequentially.

November to December historically, we used to see a 6% or so drop off in shipments per day and this year. It was only a 4% dip.

In January we were kind of flattish with December trends.

That's usually up but that's you know also we usually don't do it with G. R. I in January it's been a little later than that and in the last few years. So.

You know in terms of growth the comparisons obviously get easier.

Fury, a year ago shipments were up 1% and a half in tonnage was essentially flat and then after that.

When the pandemic hit beginning of March you know the comps get easier for a few months.

You know I will say I mean, there was a little weather late January there's been some weather this.

So far in February so, it's a little too early to call on them.

Give you a whole lot of guidance on February.

Right.

Okay.

Yeah that makes sense.

One.

On other revenue.

That was it.

It looked like a strong number in the fourth quarter can you just kind of review, what what might have driven that and kind of.

How we would look at other revenue and also I do know is that flow to the bottom line better than LDL or is that just kind of.

Similar flow through.

Yeah.

Yeah, I'd say, it's a similar.

Flow through I mean, we've had some success in cross selling.

Sigh of sales folks cross selling some of our linked tech services.

Some of the logistics and brokerage services that link ex puts together for customers. So.

We've seen we've seen some good trends there.

Yeah.

So you'd be optimistic we have you should expect that to continue.

Yeah.

I think we also probably experience some of it.

Shipment of some medical supplies and such on the Covid related moves, but but outside of that.

Nothing specific to call out.

Pretty small piece of our.

Net revenue.

Yeah, that's right.

Thank you for your time.

Our next question comes from David Ross with Stifel.

Good morning, gentlemen.

Most of my questions answered tomorrow at our conference, but just.

Just one for you here in.

Our newest service I saw that you guys have Inc.

Yeah.

Third month derived by date until delivery assurance for clients.

<unk>.

How new is that.

Service how is it helping the volume growth and then are you able to charge a premium for it.

He was one of the premium products.

Yeah, I think David it's.

We implemented it through 2020, but I think the big thing for US is it's an opportunity to differentiate.

We're in a position where we feel like we can.

We have good control around our network and we can execute on operations. So if there's an opportunity to provide sort of that income.

Incremental level of surety for our customer we will and.

And you know there is an opportunity to certainly to charge for that so that's a.

Kind of an over something that we've developed over time and those are some of the suite of services that will continue to look to offer into the future.

Excellent. Thank you.

The next question comes from Jon Chappell with Evercore ISI.

Thank you good morning.

First I think that northeast. Atlanta example, is a great one getting closer to customers I'm thinking that's going to help you built in productivity and the margin and also probably in pricing as well, but there are other examples of how you can replicate what youre doing in northeast Atlanta and from the legacy markets, maybe Texas for starters, you can speak to.

Oh, absolutely so yes.

That's not the first time, we've done something like that was Atlanta, North Atlanta. So we we had two facilities in Dallas Metroplex, which were you'd imagine this sort of Dallas Center East part of the geography, we added Fort worth a couple of years ago that was an immediate impact pause.

Ziv impact force.

We've added.

The L. A basin, we added long Beach, we added a second terminal in Seattle, a couple of years ago.

Those opportunities if you look across the geography, we have two facilities in Chicago arguably I think everybody is larger than us as you know three or four or five in that market.

That's a great freight market and it's an opportunity for us to add additional additional coverage there Houston.

It's long been a great sigh of market, we have a single facility. There. So you know as we look at our.

Geographic opportunities, it's as much about maybe enhancing the northeast coverage, but it's also you know in the legacy markets finding places that we could move closer to the customer and usually it.

The payback if you will comes with multiple sort of legs under one leg. It you certainly you are providing service to customer moving closer to them.

But times are all improve because you're going to meet the service requirements that the customer is looking for maybe in the case of North Atlanta, We we actually move closer to a part of town, where we have a better a better chance to recruiting drivers.

That could be an opportunity or you know in the case of Dallas Fort worth couple of years ago. It was taken some of the freight out of the two legacy terminals in Dallas and creating some operational efficiencies. So you know there are a variety of.

Sort of value drivers that come out of these.

And I think all of those markets are ones that we could continue to add we're opportunistic around it we look for we look for existing properties are great to transition to but in some markets you have to make a greenfield investment much like we did in north Atlanta.

Yeah, that's great and then the follow up on that same topic. I know you guys don't give guidance, but there's very few scenarios you can kind of walk through what your cash flow is not going to exceed your your capex for this year and I know you don't like to keep a ton of cash on hand and definitely under Levered.

Do you keep a bit of dry powder for some inorganic growth. If you will and I know your four to six terminals this year.

But it's it's consolidation or M&A part of your growth strategy going forward.

So for US we want to own strategic assets. So we've been very focused over time on protecting the balance sheet such that we could make those sort of dry powder investments.

When they become available and certainly we would move.

Quickly if there were something that we could find that would be a nice addition to the <unk> footprint. You know if you go back to 19, we added.

Facilities are leased facilities.

From a competitor that exited the market we were in a position that we you know arguably would want have preferred to own some of those but you know the the.

The former market participant elected they wanted to be industrial real estate investors. So they weren't willing to sell but we were interested in operating so we're okay leasing those but if there is similar situation came about we had the opportunity to buy absolutely we'd do it if it you know obviously, it's in the right location right price and all that sort of thing the balance.

Sheet is set up for that and that's sort of a purposeful.

So that.

You know if we can find a way to drive growth beyond four to six terminals. This year, we will but it's going to be it's dependent a bit on what we can find in marketplace that makes sense to fit into our network.

Got it understood. Thank you Brett.

Our next question comes from Ari Rosa with Bank of America.

Great. Good morning, Congratulations on a strong result here.

So I wanted to talk about the operating ratio and you know obviously 2020 was challenging for a number of reasons, but the operating ratio result was was obviously very strong, but maybe you could share thoughts on both.

What aspects of 2020, where may be unique that allowed the operating ratio improvement to be what it was and then bigger picture freights. It was encouraging to hear you talk about.

Operating ratio for the next year or two exceeding the target of 100 150 basis points.

Improvement.

Could you maybe talk about any structural barriers that you see to get into kind of a low <unk> type of operating ratio is that something thats doable with the current network or you know as a firm.

Further expansion of the network or further kind of repricing of contracts that's needed to take.

Get there over kind of a three to five year horizon.

Yeah. So when we think about what the opportunity is for the business, we don't see some see it a bit in <unk>.

Part of it that says we can't get to those sort of.

Solidly into the eighties or.

When we look at the largest competitors.

The sort of national footprint. They certainly they have some reach that we don't have so that means that they can access from customers that we don't have so perhaps in those cases.

Expanding our footwork footprint will help us drive to those sorts of drive the alarm because we'll find that mix of business that makes sense, but when we think about the biggest value driver.

Yeah, it's always for us is going to be pricing and mix. So if we.

It takes some of the best in class carriers that are out there and we compare.

Just for weight per shipment and length of haul the biggest differences often pricing. So if we can if pricing kind of really takes two forms its right and its also mix of business. So we see the opportunity it's out there it's a matter about execution, providing that great service to customers.

One of the things that is a real highlight of 2020 is what our ops team was able to do in the midst of a pandemic. They did a great job servicing a customer that puts us in a position that when we go have those conversations with the customer if it's somebody that's new we are in a position we can say listen our.

Key service statistics or as good as anybody's arguably better than many.

So this is what it costs to do businesses saia.

Flip side, you're in a position, where you've kind of you've gotten to the place where you're you're competing on an equal footing. So I think that theres really not a straw.

Structural disadvantage, we just have got to continue to reach new customers expand the network to support that it's all kind of wrapped together.

Great. That's that's really terrific color.

Looking forward to seeing you guys get to that level.

From my second question one of the things we had heard about from a number of carriers and it's just about a congestion are particularly in the rail network, maybe service levels not being quite what are what we would've hoped they might be maybe you could talk about what kind of impact that had on results from fourth quarter and.

If you're seeing any improvement.

We now are Inc. First quarter.

Yeah, No change really I mean demand is still strong. So we weren't like I mentioned earlier, we werent able to get as much no rail capacity as we might have used.

Our mix of PT miles was about one third rail in the fourth quarter and two thirds trucking and usually it's it's a little more balanced you know, maybe 40%, 40% 45 per cent rail.

So that had the effect of raising our RPC cost all day, because we ran more interest than we would like to so yeah. I mean, that's the service you know it wasn't great, but primarily I think it's just a you know.

Factor of the congestion on the on the rails with all the demand.

Okay. It sounds good thanks for the time.

Sure.

Yeah.

Our next question comes from Stephanie Benjamin with free list.

Hi, good morning.

Hey, good morning.

I know that you gave kind of your your net capex expectations quite the year net I'll quickly walk through your plants retro from Cam.

But maybe you could walk through from other investments you may have anything behind technology or other productivity initiatives that youre expecting to rollout of our enhanced this year. Thanks.

Sure.

Just in terms of the mix I mean, we expect to spend more on real estate year over here some of that some of that may very likely be in the form of raw land.

On the equipment side, you'll see this year weighted more towards trailers and tractors are attracted by it will be down this year year over year probably.

A third to a half of what it was a year ago, but the trailer purchased will be ramped up.

Part of Thats more pumps required with our expanding network and our and our length of haul.

We're also seeing some opportunities with national accounts to to grow our business and pickups from efficiencies if we're able to.

To put trailers.

Customer and then swap them.

Wait till their fall in income pick them up and swap them. So we're going to have some more trailer buys to be in a position to offer those to customers. So the mix on the equipment side, a look a little different but we continue to see benefits from from lowering the age of the fleet.

Of course, all the safety enhancements that come with our newest tractors. We think we are.

Getting a benefit of that and safety and claims expense over time. So we will continue to investing to keep the age of the fleet down and to get all of those technologies.

Yeah, I would just add that we're gonna be we're on the safety equipment side, where we're very.

Very focused where of early adopter of any available technology. There. So that that's part of our plan.

We will rollout.

E L D device this year from fleet.

Handheld device all of those things I think they had.

I'm not in a position yet to point out the productivity enhancements that they certainly will improve our driver experience and our customer experience along with that.

And we continue to invest internally around data and analytics.

The pricing.

Seems that we have are really driven about our ability to capture and understand the costs that we have handling customers free and being in a position that we know what to charge for it. So you know those technologies those investments from our ongoing and they take the form frankly at both capital and expense but.

Well.

Those are so critical we will continue to invest and reinvest in those areas.

Great well I really mean it.

At the time thank you.

Thanks.

Our next question comes from Tyler Brown with Raymond James.

Hey, good morning, guys.

Hey, Tyler.

Hey, I apologize if this is in the 10-K I just can't remember, but can you refresh us on the tractor.

And trailer fleet ages.

Yeah, we've worked that the tractor age actually a little bit below five years now coming into 2021.

Trailer side, its probably sub eight these days yeah.

Like I said with the expansion on the trailer side this year.

Yeah, and then Doug you made some interesting comments on that so you've seen more drop and hook request does that feel like a trend change or is that just the market you weren't participating in quite as much in the past.

Probably a little bit of both probably a little bit of both I mean, we've certainly gained pick up efficiencies. If if we have enough equipment to do that for customers I'd, rather go out and pick up a trailer with 10 shipments on it then and go and pick up a trailer each.

Each day pick up one or two shipments so I'd say, it's probably a little of both.

Okay, Okay, certainly in a position where certain certainly in a position to be able to invest to take advantage of it yeah.

Yeah, Okay interesting and then so.

Fritz on the terminals that you are adding this year you talked a little bit about this but.

So are those going to be greenfield or are they gonna be purchases or leases just how does that break down I know Atlanta is a greenfield and then just big picture what what is your long term philosophy on door ownership do you guys have a target there.

So Tyler yes, so the.

North Atlanta's Greenfield I would expect the others will be.

Combination of lease and purchase they will likely be because of that will be legacy facilities are in the market are available I should say ideally you want to own the strategic assets right. So.

If you're in a position that you can have ownership in key markets and you've got the key asset with that we.

We will do that now unfortunately in some cases as we've seen.

Can't get that.

If they get control of the asset, but you can kind of get there pretty closely if you get a good effective market based lease with.

Some tenure to it tenure to it so it's in a position where we can effectively have a long term asset.

So it's.

You know.

It hasnt changed for us, we prefer to own more but we need to be in the market. So sometimes are willing to compromise it from Canada.

Okay. Okay, and then my last one here so Fritz you talked a little bit about improved service.

But can you can you give us any color on kind of what on time percentage is I had thought that your prior goal was maybe around 97 could you. Maybe you can talk just using that as a bogie if you're if you're better than that these days.

Yeah, we would say in the fourth quarter at 98%. So we would continue to push that.

And that's critical for the customers I mean, you think about it like this if you can you can do what you say you promised to a customer you have a better opportunity to charge for it if you take care of their freight theres an opportunity to charge for it. So that's that's critical mass use survey data came out in Q4 across the board we saw improvement.

That was exciting to see so all those things are points of differentiation and those are an opportunity for us to charge.

Yeah, absolutely I appreciate the time guys. Thanks.

Thanks Scott.

And we'll take our next question from Amit Mehrotra with Deutsche Bank.

Hey, Thanks for letting me have a couple of follow ups here.

I was just wondering if you could give us an update on the Memphis facility I think that's a pretty.

Pretty big deal for the network from a density and cost perspective. If you can just help us think about the impact of those two things from from opening that Memphis is somebody I think back in October.

Yeah, no, it's a beautiful facility well positioned got plenty of capacity.

It really is ideal.

For its position.

Location and the ability for us to grow.

For the foreseeable future in that facility so that that's been fantastic.

I don't really have a carve out for that I would tell you that it's that's part of the long term growth of the company right, that's sort of a foundational break facility for us and.

You know, it's all part about all part of <unk>.

Supporting our longer range growth.

But has it allowed you to to close smaller brake facilities.

Maybe you guys have been able to build direct loads between between.

The major demand centers I mean is there a kind of a cost and that was the way that occurs by a long yes.

Pretty.

Good point, a minute I mean theres been some of that I don't have a number to breakout for you, but that's certainly having a well positioned break facility like that with plenty of capacity certainly our regional sort of next day break operations that we had historically as a regional carrier as we become a national carrier, we don't need that anymore in and having a.

A memphis facility position.

Sort of absorbed that.

That's fantastic.

That's part of the success that you saw in the fourth quarter and I think it only gets better draw from.

Sure.

Okay, and then just a couple of very quick ones from me for Doug <unk>.

Ex fuel ticked down a little bit sequentially, we typically don't see that.

Length of haul was also up sequentially I guess weight per shipment was up sequentially. We typically don't see bad either third quarter to fourth quarter, but can you talk about you know why yield ex fuel actually ticked down sequentially. It was just a weak dynamics or is there something else.

Yes, I mean, you mentioned all the factors their length of haul would help you a little bit and the way. It was it's been really strong so.

No.

Sequential down doesn't really bother me, though the kind of revenue per shipment ex fuel were getting.

But yeah, you've got it you got to weigh those factors.

And then DNA I know you guys are kicking up capex, a little bit capex intensity, what's the headwind on DNA that we should expect this year.

Yeah, I mean, I think I don't think you should still figure you know low double digit percentage change year over year, but I mean as a percentage of revenue it probably tracks about the same as it did in 2020.

Got it okay. Thank you very much appreciate it.

Thanks, Amit.

Yeah.

And that concludes today's question and answer session. At this time I would like to turn the conference back to Holt I'm, sorry, Fritzl squeeze for any additional or closing remarks.

Thank you to all on the call. We appreciate your interest and long term support of site and.

I look forward to an exciting year in 2021, as we continue to execute on our plan. Thank you and have a good day.

And that does conclude today's conference. We thank you for your participation you may now disconnect.

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