Q1 2022 Saia Inc Earnings Call
Yeah.
And ladies and gentlemen, please stand by good day and welcome to the spire, Inc. First quarter 2022 earnings conference call.
Today's conference is being recorded and now at this time I would like to turn the conference over to Mr. Doug Col. Please go ahead Sir.
Thanks, Jake good morning, everyone welcome to <unk> first quarter 2022.
Conference call with me for today's call the sides, President and Chief Executive Officer Fritz hold space.
Before we begin you should know that during this call. We may make some forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.
We refer you to our press release, and our SEC filings for more information on the exact risk factors that could cause actual results to differ now I'll turn the call over to Fritz for some opening comments.
Good morning, and thank you for joining us to discuss <unk> record first quarter results. Our first quarter revenue of 661 million surpassed last year's first quarter revenue by 36, 6% is a record for any quarter in our company's history shipments per workday grew by five 7% of our revenue per shipment excluding.
Fuel surcharge grew by nearly 20% driven primarily by $15 six improvement.
L T L yield.
We continue to execute our business plan at a very high level operational execution was a highlight in the quarter. Our team did a nice job of managing around water storm activity to minimize network disruptions our ability to quickly bounce back after weather related closures put us in a position to respond quickly to our customers' needs not only do we respond.
Our customers' capacity capacity needs, but I'm thrilled that we were able to do so excellent quality evidenced by our first quarter cargo claims ratio of <unk>, five 7% and on time delivery over 98% the pricing environment. Our industry remains stable at a recent shipper survey conducted by our marketing group indicates to us that our.
Or is that a positive business outlook over the next several months they are not expecting to see significant increases in capacity in either truckload less than truckload over that period the yield improvement as a result of our business strategy, which has stayed at its simplest form is to provide a differentiated high quality service to our customers. This differentiated service.
Wires that were paid to the ongoing investments in the business as we build our outdoor coverage network and maintain very high service levels. We are increasingly able to reach a broader geography and provide superior levels of service.
So our revenue per shipment was a record $273 or $329. Excluding fuel surcharge, we still feel like there's a long runway for improvement there it would be our par with some of our high service level L. T L competitors.
Record revenue set the table for record financial results for the quarter as operating income grew by more than a 100% from the prior year to $103 4 million and our 84.4 operating ratio is the first quarter record.
I'm pleased to report the roster of good start this year as it relates to our plan for terminal additions. We've opened two new terminals. So far this year one in Lasalle all noise serving customers.
Chicago land markets. This past week in Parkersburg West Virginia, our first in the mountain State. We have four additional terminals are on track to commence operations in the second quarter with that said I'll turn the call over to Doug for a review of our first quarter financial results.
Thanks Rich.
First quarter revenue increased by $177 1 million to $661 2 million the components of revenue growth in the quarter were as follows tonnage grew 11, 2% a combination of seven 4% shipment growth and a three 5% increase in our average weight per shipment on a workday basis tonnage grew nine.
5% in shipments increased by five 7% our yield excluding fuel surcharge improved by 15, 6% and 21, 4% including fuel surcharge.
Fuel surcharge revenue increased by 75, 7% and was 16, 8% of total revenue compared to 12, 9% a year ago.
Moving now to key expense items in the quarter.
Salaries wages and benefits increased 18, 4% driven by wage increases across our driver and dock workforce as well as hiring and referral bonuses paid in the quarter to attract new employees, our head count is up approximately 13% year over year.
Additionally, our August 2021 wage increase of approximately four 7% contributed to this increase on a year over year basis.
Purchased transportation costs increased 73, 8% compared to the first quarter last year and were 11, 8% of total revenue compared to nine 3% a year ago truck and rail purchase transportation miles combined were 19% of our total line haul miles in the quarter compared to 15, 5% in the first quarter of 2021.
Fuel expense increased by 63, 1% quarter, while company miles increased 10, 9% year over year the.
The increase in fuel expense was primarily the result of national average diesel prices rising by over 45% year over year in the quarter.
Claims and insurance expense decreased by six 5% in the quarter, reflecting decreased frequency and accident severity in that expense line claims and insurance expense was down 36, 9% or $6 3 million sequentially from the fourth quarter.
Depreciation expense of $40 million in the quarter was $12, 9% higher year over year, driven by investments in real estate equipment and technology.
Total operating expenses increased by 28, 1% in the quarter and with a year over year revenue increase of 36, 6% our operating ratio improved 550 basis points from a year ago to a record 84, 4%.
Our tax rate for the first quarter was 22, 5% compared to 22, 3% last year and our diluted earnings per share were $2 98.
Prior to $1 40 last year.
We anticipate an effective tax rate of approximately 25% for the full year.
In 2022, we continue to anticipate capital expenditures will be in excess of 500 million I will now turn the call over to Fritz for some closing comments before Q&A. Thanks, Doug.
It's always nice to come out of the first quarter with good results as we move into our seasonally stronger months of the year I am excited about all the new openings and relocations that are ahead of us this year and the groundwork groundwork so far to keep us on track. The March opening of Lasalle provides coverage for the Chicago, Northern Illinois freight market will supplement this opening with a new low.
<unk> later this quarter in Rockford, Illinois, and hope to add another Chicago area Terminal later this year in late June we expect to add two facilities to expand our service area in southern Georgia beyond These terminal openings, we have as many as 10 slated to open in the second half of the year with each new opening our existing customers have confirmed our strategy.
By asking us to handle their freight needs of the new markets.
The customer response is a testament to the high quality of service and reliability that we continue to provide.
To support our pace of openings, our human resources group has continuously recruiting and on boarding the talent that is required to open and operate these charcoals along with expanding our driver Academy program. This year, we are partner with driver schools and technical colleges and Submarkets to increase our candidate pipeline and to serve as a feeder program for our drivers.
Catherine and.
In total as Doug mentioned, we expect to invest over half a billion dollars of shared real estate equipment and technology. So far equipment deliveries are generally on schedule, we monitor deliveries daily and have built our equipment plan for the year in a way that should allow us to meet the needs of our terminal openings. Even if there are further supply chain was.
There seems to be a new headline out almost every day about an imminent economic or industrial slowdown or a looming recession, while our business levels remained steady we're in a unique position as a company is that while we are excited about our expansion, reaching new markets for our customers. We are focusing our growth on those segments of the business to provide a fair return for the valuable.
Service, we provide.
Our business is a capital intensive wanted our network is an asset that requires constant reinvestment to may take we can only do this if we bring on new businesses are compensated us fairly and is best achieved providing by providing great service and presenting our customers great value proposition.
I don't want to oversimplify, it but our strategies strategies is to continually put our customers first by maintaining our promise to handle their freight with great care and deliver on time with that said, we're now ready to open the line for questions operator.
Ladies and gentlemen, if you would like to ask a question. Please simply by pressing star one on your telephone keypad, just keep in mind, if youre using a speakerphone make sure. The mute function is released so that seemed a little creature equipment. Once again star one for questions.
We will begin with Todd Fowler with Keybanc.
Capital markets.
Hey, great Thanks, and good morning.
Maybe to start so you made the comment that you guys have started the year strong and we see that in the margins a little bit better than what you had talked about from a seasonal progression you do have some terminal openings that are more second half or back half weighted.
You talked previously about margins being at the high end of the 150 to 200 basis points on a full year basis sitting here kind of early May do you have any comments on you know some of the moving pieces in your expectations for margins on a full year basis at this point.
Yes, I think I think I had mentioned earlier this year Todd that if we if things worked in our favor we would expect to be.
Beat our range and I would say that as we are trending right now I think we'll be above the 200 basis point improvement for the full year.
The economic environment will dictate how far above but I think we're we like where we're executing right now and I think that this is an important time because when you're in a position where you can meet those customer requirements and obligations you can execute even in a slower period of time.
This is a good time to continue to push our value proposition and I think it will end up leading us to achieving those sort of financial returns.
And to that point it sounds like your team has done some work again on pricing and where you're at in the market and in the past you've shared about you know where do you think your pricing is relative to some of your peers I don't know if you've got an updated number on where you think youre priced versus the market and what you think the yield opportunity is and then just if you could also comment on contract renewals in the quarter that would that would be great.
Yeah.
Yeah. So Todd I think if you look at the available public data or some of the market data. That's out there you can see that although we had a great quarter.
Driving our pricing program and our initiatives, we still have a ways to go and thats that to close the gap and reach parity with some of the other other elements of the market.
So I think in the quarter, we achieved what was at 10, 2% contract renewals, which is roughly in line with what we did in the fourth quarter.
So that's a.
We feel good about that I think thats indicative of where we are I would point to also if you look at our actual if you go back several quarters look at the contractual renewal percentage. It didn't look at our actual yield in shipment sort of.
Rate improvement, you'll notice that we've actually had been performing.
We get a rate above.
The contractual renewal rates. So I think that's a testament to us really driving the accessorial initiatives.
Got it Okay and then the last one for me Doug do you have common sign.
Insurance and claims in the quarter. It came in pretty favorable as a percent of revenue in and you know relative to where it's been trending recently. So do you have any comments on <unk> and then maybe thoughts for the rest of the year. Thanks.
No.
Like we said in the opening comments Todd it's really there's always volatility around that line.
The premium renewal was pretty favorable this year versus the last couple just because it wasn't as inflationary, but but that's a small part of the number on a quarterly basis, it's primarily driven by your actual.
Experienced in the layer in terms of your liability expenses. So now I'd, just say, it's normal volatility and for looking forward, probably a three or four quarter running average.
You know it is probably your best bet.
Trying to single point out for the next quarter.
Okay got it thanks for the time this morning.
Sure. Thanks Todd.
And now we'll take a question from Jon Chapell with Evercore ISI.
Thank you good morning.
Fritz you sounded unsurprisingly optimistic given the recent results, but kind of contrary to some of the headlines as you noted.
Two questions on on that tone and first is there any way you can give an April update oh on anything whether its shipments tonnage and revenue per hundred weight I know it'll come out in the queue, but just looking for a little heads up there and then also in the last call. You had mentioned increase in door count in the mid single digits and also an increase in shipments in the mid single digits and I just wanted.
To make sure that those as you continue to execute on the terminal additions if you're still looking for that same correlation or if there's something in the macro backdrop that may change the shipments relative to doors.
Good morning, John I'll jump in on the first part of the question I'll go ahead and give you the March numbers too. So March shipments were up two 2%.
And the tonnage.
These are per workday numbers, the tonnage was up four 2%.
And then as far as April .
I think our comp last year on the shipment side I think comps I think April year goes up 27, 8%, if I'm not mistaken and and you know our shipments. This month are up slightly and tonnage up low single digits on a year over year basis.
You know, we don't we don't comment on the yield.
In the middle of the month or on a monthly basis, but I'd say.
April revenue on a year over year basis in the mid 20% range. So again that shows our focus on the mix and freight selectivity that we're still able to see that kind of revenue growth.
Essentially shipments that were just up a little bit and comps get a little easier in the third and fourth quarter, but we've got tough comps over the next couple of months.
In terms of.
The door count I think on an annual basis, our doors are up about 4% year over year and I would I would continue to expect kind of low single digit shipment growth.
The Macroeconomy holds up over the rest of the year I think that's kind of the pace.
But where we're seeing in that and that makes that makes sense with our focus on mix.
Got it that's helpful and then.
My second one on the contract renewals I think we're about 10, 4% in <unk> 10.2 per cent and <unk>, where do you stand on the overall portfolio book of business is the majority of the re contracting in <unk>. So you've effectively mark the majority of that to market or do you still have a pretty long tail over the next couple of months, where you could still potentially.
Get those kind of low double digit increases.
I think the way you would look at our book of business.
It's sort of Ratably renews during the year. So you know that.
We will have a <unk>.
Somewhat similar sort of mix of contracts that come up in Q2, and Q3 and the other thing that I'd point out is that.
Yeah.
Others in the business are not standing Pat either right. So we got to continue to push our pricing opportunity.
<unk> continue to make sure we charge for all the services that we provide.
And I've been pleased with how we performed against that the last couple of quarters, it's been real important part of our story.
I think in a you know in an environment where.
Looking forward companies that can differentiate on.
Great quality service and keeping the promise with the customer that those are the ones that they can take advantage of this environment and kind of continue to grow operate and earn the pricing. They deserve. So that's why we feel confident about where we are.
Great. That's very helpful. Thanks, Fritz Thanks Dax.
Thanks, John Thank you.
And now we will hear from Amit Mehrotra with Deutsche Bank.
Thanks, Operator, hi, guys. Doug can you just give us the oh, our expectations sequentially I know, there's a decent step down in or but I was.
I also think either maybe a little bit more tailwind.
On PT cost sequentially.
Off of <unk>.
Just wondering if you could just talk about kind of or expectation sequentially and how maybe P T could impact that as well.
Sure.
Historically Q1 into Q2, we've seen you know a pretty wide range out typically always improvement.
Coming off of a record Q1 and with the opening pace. We've got over the next couple of months I'd say.
I'd say, we would still hope for about maybe 200 basis points sequentially Q1 into Q2, I think would be good work, we've seen some seasonality better than that.
Over the last 10 years, but it's like I said, it's always been volatile in our maps moved around over the years.
Increased weather exposure and things like that.
Our best guide would be that you know we think another couple of hundred basis points from Q1 into Q2 would be a good target.
I expect PT miles to continue to run at a similar level for us and then we'd like to get more rail miles if we could we're still skewed a little bit more.
PT truck.
As rail than we've been historically so if.
If we were able to get more rail availability I think we'd use it in.
You know again with the openings, we've got coming up.
I think we'll continue to use <unk> at a similar rate in terms of the percentage of our miles it like I say it was it stepped down a little bit from from Q4 to Q1, but.
I don't see it.
Necessarily trending down right now with all the openings, we've got coming up over the rest of the year.
Yeah, Okay that makes sense and then maybe one for Fred.
Margin commentary was helpful. I guess for this year, but given everything.
Everybody.
Every.
Everybody is thinking about a downturn and really nobody knows ultimately what's going to happen over the next year I think it would be helpful. If you could talk about how you think the model.
You know performs in a downturn.
I think you guys have invested a lot in service is obviously a big.
The correlation between service and your ability to kind of price not because of inflation, but just help crystallize that for us in terms of how you think about this business performs in the downturn and I just wanted to clarify on your service count increase.
I think you said too so far for in the second quarter, and then turn in the back half that puts you above the 10 to 15 I wasn't sure if I'm misreading that if you can just clarify that thanks.
Sure. So yeah, it's full year, we're expecting 10 to 15 openings. So.
We may have got tied up there and the notes, but 10 to 15 for the full year, you've got a pretty good pipeline will lead us into next year as well.
Listen omit our our strategy right now is really centered around customer first right and taken care of the customer meeting expectations, providing a very high level of service and I think in an environment. Even if it's slowing those are things that we can control right. If we can deliver those and.
<unk> or exceed our customers expectations, we ought to be able to price for that and if I look at the landscape. That's out there I like our quality and service stacked up against any of the National players right. I think we do a great job and we look at the pricing opportunity in the market pricing opportunity, we got to continue to push that.
So I think that the.
The catalyst for us starts with taking care of the customer first and keeping those promises as we do that that gives us our our team our sales team the opportunity to really push the pricing around that because the <unk>.
Customers getting great value, even in a slowing economy arguably.
If their cost are up.
Differentiated service that meets or exceeds expectations.
Well, it's a winning argument even in a slowing economy. So.
I think the things that we can control overtime.
Our tools analytics and how we manage coach our business, we can deliver those results and I think that's what gives us confidence to continue to push that all of our expansion through a cycle.
Okay. So just so I understand so you're saying that in a downturn.
Cost per shipment can stay still stay positive because of the focus you guys have about service is that what you're saying.
That's what our incentives and Thats our focus.
Yeah. Okay. Thank you very much I appreciate it.
And now we'll hear from Ken <unk> with Bank of America.
Hey, great good morning, Doug.
Can you maybe just going on that kind of trend. There can you decipher the difference where you are in growth mode versus the market.
Winning share right now is it maybe just can you get a read through in terms of what you see in the underlying economy and the status of the consumer.
Or manufacturing.
And then the ability to get your growth rate and you posted 13% teammate growth maybe talk about your ability to do so in this market.
Sure.
Yeah.
Listening closely to our customers they look at the balance of the year.
Into next year that they remain positive and that will be across all sectors thats from our own sort of research contact with customers ongoing communication. So we think that that is a.
The backdrop continues to be positive I think the other piece that we see.
See we see our performance, we will get the feedback from our customers and we see that they really value the quality of service and we've done a good job of maintaining that commitment to them.
And that has allowed us to.
Yes, expand our footprint and take share in markets.
If you look at it over time over the last five years, we've accelerated our pace of market share growth over that time, while we've been growing and I think some of that is it's really testament to our ability as we've opened new facilities to replicate that sire quality and service pretty consistently.
We've relied on the as we've grown in markets or added markets. We've relied on our existing customer base, who are familiar with what what they get from us.
That's important and I think that puts you in a position where you're not trying to win the customer with price or what are the customer with service and when you do that I think you have the opportunity to maintain the margin structure. It even improve the margin structure overtime. So I think as we look forward as we saw in these terminals, we don't see a real.
We don't see a risk to that plan right now I mean, one of the terminals I'd give you one anecdote.
The Atlanta market, we've long talked about adding terminals here, we added a second terminal the market in the fourth quarter.
What's exciting about it is that terminals already profitable that's not at the company average yet, but more significantly the entire Atlanta market grew for us because we were in the market already people knew who we were we have extended our reach here, we've replicated the service and how we operate more efficiently at the same time.
So it's a win win and I think as we look forward into the balance of this year and next as we add our openings I think that's those are things that we can repeat.
But I guess just to clarify like are you able to decipher if that's winning business from your peers as you keep growing with your own customers.
I just want understand kind of how you can tell when you start to see a turn in the economy I understand that you are able to grow because you are in growth mode, but I understand in a bigger picture of what that means.
Just kind of share gains from others or how we look at this.
Right now I'd tell you it's both.
Both share gains from others that it's incremental customers for us I think whats.
It's tough to decide for a little bit if I, if I'm in a position that I have an existing customer.
And I couldnt reach or provide service to a market I know can.
Incremental is that is that share gain or is that a new market. So arguably for us we consider it would be both.
And I think today as we looked across the landscape, we continue to see opportunities to add new customers and we haven't seen any slowdown with that at all.
And then just a follow up if I may on Capex you mentioned.
Reiterating the $500 million in your number of service centers, where the same was there something in the first quarter was it lack of deliveries that you're gaining confidence you'll still get the trucks you need or you mentioned there are other things you can do.
Maybe just talk through the Capex side of it.
Yes.
Opex.
Equipment deliveries are behind the original schedule, we still think we will get them. This year, that's been a bit delayed.
Real estate transactions historically.
They are tough to predict closing and saying that that's also a little bit of a timing issue there, but we would expect that we'll catch up the equipment deliveries in the real estate will remain on track for the year.
Wonderful thanks for the time guys I appreciate it.
Okay.
We will now hear from Alison Plenty Act with Wells Fargo.
Hi, good morning.
Just building on that Atlanta example, that you gave I mean, obviously revenues are at their shipment growth in that in that scenario is there a way to think I know you mentioned, it's still not at the average profit figure at your terminals is there a way to think of the operating capabilities, it's bringing in terms of more fluidity to your system that over.
It'll be an incremental contribution to that of our increase any thoughts there absolutely I mean, I think probably the best anecdote is you have a driver of that sort of Atlanta.
He is not spending an hour to go service the northwest Atlanta market.
He's now service serving doing a better job building density around the South Atlanta terminal doing all those pickup and deliveries we've hired a driver in northwest Atlanta is now covering that market and building density around.
That facility so it's a.
It gives you an opportunity to better utilize your original or starting assets to better service those customers and then the new market in the northwest Atlanta, you can build density over time, there. So I'd say the best thing for US is its a better way to utilize existing assets grow the business and the increment.
<unk> should get significantly better over time.
Great. Thanks, and then just on leverage and you're obviously very low here just any thoughts obviously it sounds like.
Ongoing strength continues here just any change I think he said the balance sheet here.
You know not really kind of staying the same course that Allison I mean, we're sitting noncash.
Entering our seasonally stronger period of the year, so generating lot of cash next few months.
Fritz said, we will start seeing more and more deliveries as the months of summer roll on in terms of the tractors and trailers, but.
Plenty of dry powder.
There are dark clouds on the horizon somewhere in terms of the downturn historically in our industry. Those are always presented opportunity for healthy companies and we're in a really fortunate position whichever way things go from here I think you'd see us.
And in a position to take advantage of it I mean quite frankly, there are some some deals historically.
During downturns that we just couldn't look at because of the leverage we have on the company, but today, we sit with a really clean balance sheet sheet and generating lot of cash so.
No change from our stand point other than we intend to put the cash to work that we're generating.
Great. Thanks, I'll pass it along.
Sure.
Next step we have Scott group with Wolfe research.
Hey, Thanks, good morning.
Wanted to ask on fuel just your thoughts on the impact in the quarter and diesel prices still moving higher or do we see maybe a potentially a bigger tailwind in the second quarter and then just with fuel surcharges up so much is that in any way impacting your ability to get.
<unk> and other parts of the business.
I would say so far it hasn't impacted that ability Scott.
You know our surcharge table was up quite a bit in Q1, I mentioned, the 45% increase in the average diesel price out there.
Our our surcharge tables up but it's up for all of our competitors in the shipper is understood.
They've got a bear that cost with us.
It's not for me to decide whether what this overall inflation does to the or the impact it has on the broader economy, but right now.
The goods need to move and the shippers.
To pay that the benefit of XI has been as we've tried to close the gap on our base rates over the last several years, we're now tacking on that fuel surcharge on top of a higher base rate.
But at the end of the day, our approach has always been that the count or the customer needs to pay at a level that earns us it allows us to earn a decent return so.
The piece, that's coming and fuel surcharges, just one component of it.
Okay.
The weight per shipment tailwind that you guys have been seeing over the last year.
Do you think that Thats sustainable as this year plays out.
And what trends youre seeing in weight per shipment right now.
Yes, I mean in the first quarter it moderated throughout the quarter, a little bit I think.
That's a reflection of all the work we've been doing on it but.
I'd say that we continue to try to to push the mix to the direction of heavier weighted freight if I think about our <unk> in January .
The average rate increase across the tariff was seven 5%, but it is a targeted approach that we take to allow us to focus on the types of shipments we want so it's a short time here since the G. R. I went into effect on January 24th, but we have seen a trend that our shipments for example, the way less than one.
Pounds are a little bit smaller percent of the mix and in that short period of time, our shipments that way more than 1000 pound a little bit bigger percent of the mix. So we're going to continue to try to work on mix and drive the right kind of freight into the network but.
It's come a long way so I mean in terms of modeling.
Don't know how aggressive I'd be saying that it's going to continue.
The increase over the balance of the year.
Okay, and then just last one longer term. So you guys are going to do something low eighty's in terms of operating ratio and <unk> and I know that there is seasonality here, but so it's going to be a few years away, but is there anything about a full year.
Saudi or is that something that.
It's within the realm of reality over the next few years in your mind Fritz.
Our sub sub seven handle the next few years absolutely.
Yeah.
I mean, I don't see an impediment to us doing that.
I think we've got.
Our service offering our commitment to customers that we can.
Recoup and drive the results and the business, we have to because we have to maintain a very high level of investment in this business to maintain that quality of service.
I don't see any reason why we can't approach that or get deep into the seventies.
Only makes sense to me.
Okay.
Alright. Thank you guys appreciate the time.
Thanks Scott.
Now moving on to Jordan <unk> with Goldman Sachs.
Hi, Yeah on your terminal growth plans, just sort of curious is there.
Ah scenarios, our contacts where you could dial that back if you needed to or is it something that sort of goes forward, regardless and then secondly, just out of curiosity. When you open up a new terminal I know it may depend on geography, but about how long does it take would you say on average to.
To sort of fully season, where it's.
Within company existing operating margins. Thanks.
Yes.
The thing, we really like about the organic growth.
Strategy is a couple of things were in control of regulating it up or down right. So if there were a scenario in which we.
Didn't feel comfortable executing it opening we could certainly slow down or if you look back in our history. We also feel quite comfortable if we think there's an opportunity we can accelerate that.
It doesn't impact the strategy timing of that I mean, it's obviously that we get the 10 to 15 in place and get those operational as quickly as possible that benefits everybody to customers first and foremost.
Our pipeline of facilities that we look at is several years long.
So our.
We still feel like we've got a pretty good runway and I think we've got a pretty good competency around how you execute and opening and get those into the system quickly.
The facilities that.
We opened in the northeast both regions of the company that we've added are.
Not all the way is the best operating.
Regions of the company for us, but they are certainly giving chase, they're not really a significant drag on earnings. So we've seen that as we add those regions. We can get them profitable what's more significant as the openings that we're focused on now our lesson about opening up regions of the country and more about saturating regions of the country.
So I gave the example of few minutes ago about Atlanta, I would fully expect that facility to be a company our northwestern fully expect that facility to be.
The company average in <unk>.
Short order less than a year.
If not sooner, but more significantly.
Interesting about that is it really helps drive efficiencies in the legacy Atlanta facilities. So the benefits of it are pretty significant just just from that account.
So I think over time I think it's an important part of our growth strategy.
I think as we add these facilities provide incremental coverage in markets or in the profitability.
And contribution of these facilities will happen pretty quickly.
Thank you.
Now moving to basketball majors with Susquehanna.
Yeah. Thanks for taking my questions first to that that prior comment on the improvement in the Atlanta whole region.
Can you talk about are you able to quantify how the profitability of the entire region has moved since you opened that second facility and if so is that indicative or representative of some of the other openings that you would do.
The whole region.
It drove it was a significant contributor to our overall improvement year over year.
You know I think as you look at as we build density across our network and as we've built out the company I mean, we've got regions now that operate below 80.
Ed.
And I would fully expect to all the other regions to get there as well I mean, if you're going to have a seven handle it but I have a few that are.
Low seven handle if not six right. So it's as you fill in these the map that gives you the opportunity to do that I would expect to Atlanta now to be driving towards something that looks like our more higher density western parts of the country, where we're actually operating below eight. So I think these are important steps.
<unk>.
Thank you for that.
Go ahead.
On that note to basketball I mean, if you think about it we break the company up in 12 regions.
And like <unk> said in the East on average these division operated sub 90 and that includes our two north eastern regions.
That we're both sub 90, so only open a few years or sub 90 in the west on average actually was sub 80 and those five western regions.
Yeah.
And to the earlier conversation on capital allocation.
Talking about being in a position to take advantage of a downturn could you clarify.
If you're talking individual facilities or if there's parts of the network you really would consider being acquisitive to to grow more quickly than in France. If you could add anything about how the board is considering a buyback now that your earnings continue to go up and your multiple has been cut in half since last year. Thank you.
In terms of capital allocation I mean, I was speaking about potential deals that may be available you know in a downturn from a competitor that you know.
Struggles or atlanta or their own something that.
Acquired at the wrong part of the cycle or something I mean, there were deals like I said over the last 10 15 years that would've been really attractive given what real estate has done since then.
In terms of acquisitions I mean, we will never say no theres pockets of the map.
If you were able to find us some coverage.
We certainly wouldn't be against acquiring terminals.
You know in a basket type approach if there was an acquisition.
Yeah, I think on the capital allocation question I mean, we see a significant pipeline of growth opportunities for us just on the organic expansion. So.
We will do the right thing with the shareholders' capital at this point, we're very focused on executing that organic expansion plan.
10% to 15 terminals this year and next with related equipment, that's a significant allocation of capital.
And our pipeline of real estate that's likely.
Multiple years long and one where we want to increase our ownership of real estate. So I think that today. There is what I would tell you is there ample opportunities to deploy capital efficiently, but with that said overtime completely recognize the need to.
To manage that.
Capital available capital appropriately.
Thank you both.
Now, we will hear from Chris Wetherbee with Citibank.
Hey, thanks for the time.
No we're not really seeing much deceleration on the fundamentals of the business if at all but curious to get your take on how you're thinking about that pipeline of of expansion and what maybe are the specific parameters you may be looking for to either adapt that whether that sort of push it out a little bit or maybe even accelerated if opportunities come up are there specific guidelines that you're thinking about.
You know one year when youre looking at opening those terminals in the context of the potential.
Fundamental freight trends and activity.
Yes, I think one of the exciting things about this organic expansion is that we're focusing on.
Better serving markets. So I highlighted the Atlanta example, the Chicago example, we noted as well those are those are markets in which we probably have we don't have enough door capacity or we don't have enough of a presence and adding the facilities does a couple of things for you you can obviously take care of the customer much.
Better basis, but it's also a cost savings opportunity or efficiency play.
So we like those were also.
Because of how we've managed.
The balance sheet and the capital of the company. We are Opportunistically always looking for strategic acquisitions, even if it's a market that we're already in maybe there's an opportunity to buy a facility thats larger.
Better position, so we will do those.
We're also in a position today, where we can deploy capital.
The economy slows down we may decide to I'll call it inventory of facility and open. It later so.
I think we have a lot of we have a lot of latitude where we are with this.
I think that what I like about the growth strategies, because it's focused on markets.
Saturation markets or markets, where we're adding something on a peripheral that gives us an opportunity to kind of provide the service, but it also provides an efficiency play which even in a slower market may we can benefit from.
Okay that makes a lot of sense. Thanks, and then I guess a follow up just in terms of labor availability. Obviously you have some plans for expansion as we go through the rest of the year can you just talk a little bit about libre availability to see improvements in being able to get folks to work or how that ultimately is playing out.
You know, it's an ongoing challenge, it's certainly competitive and just about every market.
One of the nuances of opening facilities is that you now become the new player in a market and that does give you a qualitative that advantage for a while.
So if I'm if we're trying to do a good job of servicing the Atlanta market. We are having a tough time for more terminal we add a second terminal. We now can recruit drivers in a market that we weren't recruiting before so its a little bit of a increasing our horrible addressable market. If you will.
Being the new game in town will provide somebody comes in with immediate seniority that sort of things those are qualitative benefits that help with recruiting a little bit.
But it's still.
A challenge you are competing on obviously you got to have great pay and benefits you got to have a great culture and it's good to be in a market where you can.
Or in a business, where you can talk about growth and what the opportunities are for an employee or a new employee so ongoing challenges, but we feel pretty good about how it's going.
Got it thanks for the time appreciate it.
And next definitely have Bruce Chan with Stifel.
Hey, good morning, Fritz Good morning, Doug.
A follow up here on the weight per shipment you mentioned that you are essentially working to drive that number up but is there anything to read into the earlier question about consumer versus industrial there in terms of maybe tailwind to that number.
So far that's not the case and what we're seeing.
It's mentioned our view of where our customers are.
Outlook is in our marketing group conduct a shipper survey during the quarter and you know they all.
Are they all still on average felt that their inventories.
We're still at a level that it was going to require consistent replenishing and their outlook around rates going forward was that.
Are they still expected that rates, both truckload and <unk> will probably going to be higher because I didn't really see new capacity being available over the next six months. So.
I would say so far.
There's nothing from our from what we're seeing are drawn.
No.
Distinction between the.
Retail is going and where industrial is gone.
Okay got it that's helpful. And then just switching gears a little bit.
Follow up on on some of your Capex comments, Doug you mentioned tech as part of that can you just remind us of what some of your kind of major initiatives are there right now.
Sure.
Jump in on the tech initiatives so basically.
The big items that we have.
We pursue or just about anything or data analytics, driven so how do we collect data.
Through our driver devices or.
Through our data warehouse tools that we use to develop and understand better analyze the business.
Then we spend a fair amount of money in.
Supporting that infrastructure.
We're one of the great things about using a lot of data to run our business as you become very very dependent on that data, which is a good thing.
But that also means you need to make substantial investments in things like cyber.
All of those sorts of tools, as well, which to sustain and protect the business. So those are parts of our investment profile.
But it's.
It's an ongoing software development around how to line optimization or optimization of the business. So as I think about it it's really about.
Collecting data managing the data optimizing of data and then really protecting the data.
Okay, Great and then how much of that have a $1 billion and spend would you say is related to attack.
I mean, it would be a low to mid single digit percentage of it.
And keep in mind that a lot of the tech spend is going to come in the form of operating expense as well right. So cloud computing that sort of thing.
Got it I appreciate the time.
Now moving to Ravi Shanker with Morgan Stanley .
Thanks, Good morning, guys. Thanks for the time.
There was a story in the Wall Street Journal, a couple of weeks ago talking about e-commerce percentage.
Retail kind of normalizing pretty sharply back toward a long term trend levels and maybe some of the earlier.
Thoughts that we're like permanently gapping up on e-commerce penetration may or may not come true.
I'm wondering a what do you guys think about this be what percentage of your volumes.
What do you say come from e-commerce customers and C would you be completely agnostic.
Our e-commerce volumes versus in store Williams, given your network footprint.
Yes, Thanks, Robbie for the question.
In terms of E. Commerce, you have to draw a distinction or are we talking b to b or b to C.
For us residential deliveries as kind of a mid single digit percentage of our of our shipments every day, so that looks let's say.
B the BTC piece, we haven't.
Any big push strategically to grow that we feel like we do have some.
As the BDC continues to grow and it grows for heavier weighted shipments I think that is a tailwind for LCL because again some of the <unk> carriers are making a push to get different equipment to go into the neighborhoods and provide.
The residential delivery or perhaps even a white glove type of delivery service, but even if even if enel TL carrier doesn't make a push to do more of that probably stand to benefit because the companies that are.
Positioning ourselves to that whether it's a small final mile business and a regional area or something.
Still need that heavier weighted freight brought in by an LPL carrier that only a full truckload of it parcel carrier is not going to bring them in 800 pound pallet. So LCL is still positioned to benefit there but.
The bigger question, we're kind of like an indifferent to it should I say because the consumer is going to go back to buying the appliances at the at the home improvement retailer or something.
You know <unk> has a role to play there and delivering.
Multiunit appliances or whatever.
You know the back of the store, they're going to get bought off the store floor. So.
It'll be interesting to follow but.
I think <unk> pretty well positioned to handle a heavier weight or weighted freight that is b to C.
Yes that makes sense. Thanks for the detail as a follow up I apologize if I missed this if I missed this and you said this earlier, but have.
Have you had any changes in your thoughts on lease versus owning your facilities, especially our new common nodes or the northeast expansion kind of given where rates are doing and.
And just in general real estate pricing and such.
Any shift necessarily in the long term sorry are you there.
Now our emphasis is to try to own as much as we can where it makes sense. So if there are some opportunities where we've moved into a market that we start by leasing a facility because we know well at the beginning.
In short order will exit and go to an owned facility or a new facility. So we think about it that way we feel like real estate is a long term asset for US there are certain markets, where frankly, it's cost I wouldn't say, it's cost prohibitive and it's just not the assets to start available and you end up leasing in those markets.
Because you want to be in the market well, that's more important to not being there. So it's a mixed bag really but the reality of it is we would prefer to own more of our strategic assets and that will continue to be a focus.
Wonderful thanks for the time.
And once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
For just a moment.
Alright.
Thank you for everyone's continued interest in <unk>, we look forward to executing our growth plan and.
Look forward to talk to giving you update your next quarter. Thank you very much.
And with that ladies and gentlemen, this does conclude your conference for today. Thank you for your participation and you may now disconnect.
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Yeah.