Q3 2022 Saia Inc Earnings Call
Okay.
[music].
Uh huh.
Mhm mhm.
[music].
Good morning, My name is soft and I will be your conference operator today.
At this time I would like to welcome everyone to the Sire, Inc. Third quarter conference call.
Today's conference is being recorded.
To ask a question today, please thickness by pressing star one.
I will now turn the call over to Doug coal fired executive Vice President and Chief Financial Officer. Please go ahead.
Thank you Sofia.
Morning, everyone welcome to <unk> third quarter 2022 conference call with me for today's call are sized president and Chief Executive Officer Fritz holds great. Thank.
Thank you for joining us today, we sincerely appreciate your patience as we had to work through some technical issues with our earnings call service provider yesterday.
Before we begin todays call you should know that during the call. We may make some forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These forward looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.
I refer you to our press release, and our SEC filings for more information on the exact risk factors that could cause actual results to differ I will now turn the call over to Fritz for some opening comments.
Morning, and thank you for joining us to discuss <unk> third quarter results freight.
Freight trends have moderated over the last couple of months, but I'm pleased to report. This morning that <unk> achieved record third quarter revenue and operating income topping last year's record results in the quarter. We averaged approximately 30500 shipments per day about 800 fewer shipments per day than the same quarter last year and down from 32000.
<unk> shipments per day average in the second quarter. The Q2 to Q3 daily trends were below normal seasonality. The shipments were down two 5% in the quarter weight per shipment increase in tonnage was essentially flat to last year at down <unk>, 4%, our third quarter revenue of $729 million.
Surpassed last year's third quarter revenue by 18, 4% and our <unk> revenue per shipment increased by 21% our revenue growth ex fuel surcharge continues to be the result of positive pricing and effective mix management, our yield or revenue per hundred weight, excluding fuel surcharge rose seven 8%, reflecting a.
Constructing constructive pricing backdrop, despite the moderating demand environment.
Further evidence of a stable industry pricing as seen in our average contractual renewal increase of 12, 2% in the third quarter, we're committed to providing excellent service to our customers that are investing heavily in the business to expand coverage and it is gratifying to see that our customers see the value of our service offerings, our third quarter operating ratio of <unk>.
Two 4% was 110 basis points better than our adjusted operating ratio of 83.5 posted in the third quarter of last year, you'll remember that the adjusted operating ratio excludes a $4 $3 million real estate gain recorded in the third quarter of 2020 2021.
As you've likely seen from our newest numerous press releases, we successfully opened five new terminals in new markets and with our Lafayette, Indiana terminal opening. This week. We've now opened a total of 11 terminals. This year, we do not have any additional openings planned. We're currently planning to open another 10 to 15 terminals in 2023 and are ongoing.
Or to offer new and existing customers more service options.
Speak more on our outlook for the rest of the year and the next year. After Doug reviews, a few more details from our third quarter financial results.
Thanks, Fritz as mentioned third quarter revenue increased by $113 3 million to $729 6 million.
The components of revenue growth in the quarter were as follows.
Our yield excluding fuel surcharge improved by seven 8% and yield increased by a 17, 5%, including the fuel surcharge.
Tonnage decreased 4% attributable attributable to a two 5% shipment decline and a two 2% increase in our average weight per shipment length of haul was down 2% at 897 miles.
Fuel surcharge revenue increased by 74, 6% and was 25% of total revenue compared to 13, 9% a year ago.
Shifting to the expense side for a few key items to note in the quarter, our salaries wages and benefits increased seven 3% from a combination of our July wage increase which averaged four 3% across our employee base and also the result of our employee count having grown by approximately 10% year over year.
Purchase transportation cost increased by 18, 4% compared to the third quarter last year and were 11, 7% of breath of total revenue compared to 11, 7% in the third quarter of 2021 truck and rail PT miles combined were 17, 1% of our total line haul miles in the quarter compared to $19 seven.
<unk> in the third quarter of 2021.
Fuel expense increased by 60% in the quarter, while company miles increased eight 2% year over year increase in fuel expense was primarily the result of national average diesel prices rising by over 53% on a year over year basis.
Claims and insurance expense increased by 3% year over year in the quarter and was up 12, 5% or $1 8 million sequentially from the second quarter.
Depreciation expense of $40 7 million in the quarter was 13, 8% higher year over year, and $3 7 million more than in the second quarter, primarily due to the on boarding new tractors and trailers.
Total operating expenses increased by 17, 9% in the quarter ended the year over year revenue increase of 18, 4% our operating ratio improved to $82 four compared to an adjusted operating ratio of 83, 5% a year ago.
Our tax rate for the third quarter was 23, 3% compared to 24, 3% in the third quarter last year and our diluted earnings per share were $3 67, compared to $2 98 in the third quarter a year ago.
We anticipate an effective tax rate for the full year of approximately 24%.
Capital expenditures through September totaled $279 million and will approach $500 million for the full year.
I'll now turn the call back over to Fritz for some closing comments.
Thanks, Doug.
<unk> stated earlier business levels have moderated over the past couple of months and obviously, we're also entering some of the seasonally weaker months of the year with that said we continue to be pleased with the progress we are.
We are having with identifying extreme new locations and targeted expansion markets. We expect expect to open a handful of terminals in the first quarter of 2023 and plan to open as many as 10 to 15 locations in 2023.
As we will have as we've done with <unk>.
As we will have done was the four terminals. This year, we plan to re quote relocate another 10 or so terminals next year that will either outgrown or in some cases, we're moving to put us in a better position operationally or strategically all of these openings, both new and relocated terminals are important to our strategy of enhancing our service offering.
While our pipeline for terminal openings carries well into 2025 keep in mind that a key benefit of our organic expansion strategy allows us to go at the pace that suits us our business cycle is subject to cyclicality and depending on where we are in the cycle, we may see an opportunity to accelerate or even slow our terminal expansion activity.
We are currently planning for business as usual in 2023 I'll update all of you quarterly on any changes in our opening plans.
Each new terminal openings supports our strategy of getting closer to the customer and adding value to their supply chain. We continue to see great response from our existing customers, who asked us to handle their freight needs in the new markets and as our brand grows in the market. We pick up additional customers that are new to sire internally, we track customer satisfaction on a daily basis.
And Kpis are focused on customer satisfaction, our net promoter scores have improved for seven consecutive quarters further validating our customer first strategy a testament to the exceptional service provided by our team members across our growing map. So before moving on to question I'll, just say that our view of the current pricing environment.
Constructive and indications are that cost inflation will continue in the business pricing to maintain and improve margins is critical in an inflationary cost environment and we will continue to be part of.
Do our part for our customers and providing great quality and differentiated service to justify the pricing with that said, we're now ready to open the line for questions operator.
Thank you Sir.
A reminder to ask a question please signal by pressing star one on your telephone keypad.
Our first question today comes from Jon Chappell of Evercore. Please go ahead.
Thank you excuse me and good morning.
First one on the last thing you said was the inflationary cost environment. So I just wanted to focus on two parts. There you said your head count is up 10% year over year, which makes sense given the growth of the last 12 months as you think about labor and if we layer in <unk>, which is still elevated by historical standards.
What is one of those levers whats called burst and candy match them to candidates slowing tonnage or shipment backdrop that you're seeing today.
Yeah. The first thing we want to do is leverage our internal.
Workforce, where possible. So I think over time Youll see us work through the PT and that'll continue to come down over time.
We contract our PT rates as a result.
You didn't see necessarily the impact of what you see with current spot rates.
So it's a contractual rates so it's incumbent upon US then to leverage our internal assets our driver network wherever we can to build density and so that's something that we'll continue to work on.
Q3, well into Q4 into next year and that'll be an important opportunity for us.
We kind of fill in our geography and build needed density across the network.
That makes sense and then Super quick follow up just if you can any update on the trends in October I know it'll be in your Q, but we're through the month now any commentary you can give on either the shipment or tonnage or even the pricing environment.
Yes, I'll jump in here John .
October has been the first month really in a while where we've seen kind of a more sequential normal sequential flow from September into October so in.
In October our shipments.
<unk> are down about four 5% and our tonnage is down about 3% about 3%, we're still seeing a.
Year over year kind of weight per shipment number that's a <unk>.
Improved so.
Again, that's the seasonality, we bucked seasonality all year, but this was the first month, where its kind of felt normal seasonally to us.
Okay, that's super helpful.
Our expectation going through the rest of the year and we'll see how that pans out.
Great. Thanks, Doug Thanks, Rick.
No problem.
We now move on to Jack Atkins from Stephens without next question. Please go ahead.
Okay, great. Good morning, Thank you for taking my question.
So I guess you know France, if we can maybe go back to the to the pricing and cost discussion for a moment in the quarter. Doug I believe you said that contractual rate renewals were up 12, 2% in the third quarter.
Any kind of color you can provide us on sort of how that specific metric is.
In October and do you feel like that you are seeing.
Rate increases that are that are covering your cost inflation at this point.
Yes, I mean, I think we see a continuing trend around pricing as being favorable the environment is good but I think whats for XI in particular, which is critical as you know I'll point to are what we're doing for the customer.
Our service trends are as good as they've ever been.
So when you're in that situation that allows you to continue to support the longer term proposition around making sure we get paid for that service. So I think they go hand in hand.
So I think the trends are positive our service standards are high. So I think that is kind of foundational to be able to continue that pricing trend and it's based on differentiated service. So I think that helps us.
Supporting our thesis specifically, what's the opportunity at site.
Okay, Okay understood.
And then I guess, maybe kind of thinking bigger picture about about your growth plans here.
Fritz I think you said that the plan for 2023 is sort of business as usual, bringing on 10 to 15 new facilities.
Kind of think about the last year or so we've been adding capacity.
Capacity.
In terms of new doors coming online new facilities upgrading facilities.
Shipment growth really hasn't sort of been keeping up with the door growth and we're adding more doors in the next year.
Do you need to see the shipment growth kind of catch up to that.
The footprint that you've been adding or before you start thinking about maybe maybe pulling back a bit on the expansion plans to sort of what the market catch up with what you've already put in place.
Yeah. Good question I mean, I think the big thing the way we look at this is that when we add doors, we're not thinking about adding doors for frankly this year this quarter or next year or the year. After that it's really kind of a <unk>.
Sort of a longer term 10 years horizon, right, so youre, adding that capacity and I think what youre doing when you. When you can provide that you are providing a new.
Expanded service map for a customer and you know you can provide great service support and you.
I have the opportunity to find a business that operates out of your legacy network into the new.
Coverage.
And that's beneficial so the mix of business view that you'll look at us across a larger and growing portfolio now with that said, what's really really and alder score. It's important with our geographic expansion initiatives that we have the ability to.
Slow that delay that maybe.
Maybe even in some cases accelerated.
Depending on the environment and what we see right now is that we see at least as we look at the full year, we continue to see that opportunity for us.
That's not to say three three months or couple of quarters into next year, where we might say.
Let's let's pause and I don't think that has a material impact on our business, we have the balance sheet.
We can delay openings. So it's not a we're not necessarily pressured by that one way or the other what we see as a long term opportunity for us to continue to improve our service map and if we think there are opportunities for us to do that we will.
If the market is and accepting of that I think we back offer we slow down or delay so I think I like the optionality here.
Okay. Thank you again for the time.
Thank you.
We now have Ken <unk> of Bank of America will go next question. Please go ahead.
Hey, good morning, Fritz and Doug and thanks for.
Putting up with all the questions on moving the call maybe.
Maybe just talk about how you think about the progression of the operating ratio here. So if we start thinking about a deterioration in.
<unk> volumes, it looks like Youre working to hold price pretty well.
Maybe just talk about how we should think about it if youre jumping back to seasonality, where tonnage is down four 3% in shipments down four and a half how should we start thinking about that into the fourth quarter and next year.
Hey, Ken good morning.
I'd say for the fourth quarter I mean, like I said, we're pretty pleased with October just that it was.
We expected finally kind of occurred this year.
So we're going to we're going to expect normal seasonality through the end of the year and with that we would expect that our historical margin degradation would come in pretty much in line. So historically, we've seen around 200 basis points as you move from Q3 to Q4 of deterioration or degradation in the LR and <unk>.
Just on what we saw in October we think we could hit it there is a fall off in volume or we don't get kind of the end of the month.
Normal pick up in one of our bonds.
And then and maybe it's a little worse than that but I think about 200 basis points as our target as we sit today with one month under our belt.
And then moving into next year I mean, we've always said because we felt like we really improved our service and had a valuable product to our customers, but yet still had a pricing gap so walking into a year, we expect to be able to improve margins by providing good service and then charging a fair price, which is market and as we.
Do that.
Generated a lot of the margin improvement we've seen so as we move into 2023 that would be our goal now look at shipment.
Shipments and tonnage are going to be negative all year, and then thats going to be challenging to do.
I don't know everybody's got a different economic model and when the things stabilize or turn positive and Cros.
The industrial and retail economy, but.
Our view is that we've got an opportunity to continue to raise the bar service charge more for it to improve margins and we'll just see what kind of macro environment, where delta as we move into 2023.
And I'm sorry, if I missed this earlier, but did you talk about kind of your early.
Is it too early for pricing discussions or timing for Gi and how you think that might flow as as we move into a decelerating freight environment, knowing that as you said you've got to catch up on pricing relative to peers.
Yes, I mean, our view would be that we certainly can't fall behind so we haven't made any announcements yet we typically don't kind of lead the pack in terms of when we announce things, but the largest carrier in our industry is already kind of come out and laid out their plans for next year, which includes an.
Kris first of January so, we'll kind of watch the market, but but.
Everyone else does and we sit on our hands, we fall behind so that's not going to put us in a better position and certainly long flat.
Flat environment doesn't allow us to price for the cost inflation, we're saying that we've been talking about.
I'd add that where you're renewing contracts throughout the year for the national accounts, so the quarter third quarter renewals that reflected the mix of contracts that came up.
That quarter. So we would expect I don't know if thats going to maintain that rate, but we would expect to continue to negotiate.
With our customers pointing out the service offering.
The underlying costs are inflationary so we're going to have to continue to focus on pricing and the contractual negotiations as well.
Thanks, guys. Thanks, I appreciate the time.
Thank you we now move on to Jason Seidl of Cowen with our next question. Please go ahead.
Thank you operator, <unk> good morning, gentlemen.
To talk a little bit about how we should view.
The quarter obviously.
Saw a degradation of seasonality in <unk>, and then <unk> seen a return to normal seasonality here in October how much of that degradation and seasonality do you think it was just a pull forward of people shipping habits. This year.
Yeah.
Good morning, Jason.
It's hard to say I mean, the normal Q2 to Q3 seasonality.
It would've been something like down a percent and a half to 2%.
And for US Q2 to Q3 shipments per day were down about 5% so.
It was a big break to seasonality, but.
The weight per shipment is in our view a combination of the health and strength of our industrial customers.
And our view of industrial customers proudly.
We arent seeing the same kind of inventory issues play out that was solid across some of the retail land.
Landscape.
To the extent, we have retail volume in our network. If some of those shipments were down that also supports the higher weight per shipment. We saw so I mean, all in all we were certainly pleased with the quarter and given the.
The trends we saw on the shipment side, but we noticed some of the shipment trends are kind of self inflicted and we're okay with that because you see that evidenced in our mix.
Selecting the freight that works for us in doing business with the customers on the value of the service has been good path for us to be on and we intend to stay on it so.
We're pleased with Q3 and again, we will see if the seasonality that we saw in October continues.
Okay fair enough.
And Directionally, how should we think.
About capex into 'twenty, three and sort of a more stabilized environment not one works, which you have to pull back anything.
Yes, I think you'll probably see similar levels of Capex.
We still got a pretty nice pipeline of real estate opportunities and like Fritz mentioned in his comments.
Might see US act on some some real estate activities be it land or terminals in and not necessarily have to open and it wouldn't be a bad thing. If we end up stockpile on few things. So I don't think we're going to be shy about making good investments, even if we don't open them.
We make good investments and find properties that.
We will put us in a better position or in a new market I think youll see US continue to act on it because we do have a good balance sheet and.
This is probably the you know I don't know what kind of cyclicality is ahead of us over the next few quarters, but I don't think sized balance sheet since the spin out 20 years ago that has ever been better positioned.
<unk>.
Thrive in a cyclical industry than it is today.
For sure if I can sneak one more in here.
You mentioned.
Plans to open more terminals as we look into 'twenty three but you said that you would be flexible about that what type of environment would you need to see what's out there for you to pull back on your expansion plans.
I think.
Would be in a situation at big two things one that.
Be an environment in which you saw significant sort of.
Economic contraction.
And then you had also for us discretely.
The facilities maybe.
Particular market or something like that maybe you're in a situation where the business, we didn't see appropriate levels of ongoing.
Activity to support an opening and in that case, you are not not doing an opening youre simply delaying it. So yes, I think it's kind of that.
So the overall macro conditions.
Discrete conditions, you may see in a particular market.
Okay Fair enough gentlemen, I appreciate the time as always.
Thanks, Jason.
Thank you next is Scott group from Wolfe Research. Please go ahead.
Hey, Thanks, Good morning, guys. So I don't think I've got the September tonnage.
<unk> shipments if you can give us that and do you think there was much of a hurricane impact in September .
And do you think that sort of impacting the September to October .
Seasonality here.
Hey, good morning, Scott.
I'll run through the monthly numbers I know, we've put them out mid quarter, but I'll. Just go ahead and run through them. So on the shipment side in July shipments were down one 1%.
Per day in August shipments per workday were down one 9%.
And then September shipments per workday were down four 5%.
And as I mentioned the trend here in October is running down well.
Four 5%.
Moving out of tonnage in July tonnage per workday was up two 9%.
In August tonnage per workday was up 4%.
And then September tonnage per workday was down four 1%.
And again in October tonnage per day was down about 3%.
For Us I think.
Remember it was towards the end of the month.
You know.
I'd say given the markets that were impacted in the way we prepared for them.
I don't think it was.
Driver of the results I mean, the shipment trends in September were pretty well established it down.
Down four.
4% or so so I don't think it had a big impact on the business is certainly disruptive to that all of our employees and their families in that area and when those things happen.
The thing, we think about most but it wasn't that impactful to the volumes I don't think.
Okay, and then in terms of the fourth quarter operating ratio, Doug you talked about 200 basis points, you look back over the last eight years or so I think there's only been one year, where it's been.
200 basis points or more it's typically better than that so any additional color. There and then maybe just separately. There is so much focus on <unk> and the impact of fuel.
Maybe how you think about the impact of fuel in the third quarter and.
How do you think the impact would be if we go into a period of lower fuel prices and thats not happening right now, but just people are.
Im curious back.
I look back and give our guide on these quarterly sequential moves we use an adjusted number we try to adjust for accident volatility, you'll remember with our level of retention or deductible that that can cause swings in quarter. So the number we speak to is an adjusted number but.
In terms of the current outlook I think.
Given the volumes, we're seeing today in our ability to.
Work on optimization and taken out major costs around things like <unk> and all of that and I think we feel pretty good about it.
And the fuel piece.
Okay.
Yes lets say as you know Scott I mean, thats a cost in the business for sure and it's something that we got to make sure that we continue to price for and Thats part of the ongoing cost structure of the business now obviously.
Lower levels.
Fuel price levels. The surcharge comes down it's a bit of can be a bit of a headwind, but at the end of it really comes down to it's incumbent upon us to get the the entire pricing right alright. So that's one element of it and.
That's kind of our focus we know that at different times in the volatility that's associated with that.
Swings in profitability, but as we measure the business assess the business, we really focus on the all in costs and all in price.
So that.
We've just got to deal with it as we go through the cycles.
Okay. Thank you guys.
Thank you.
We now have Chris Wetherbee of Citi. Please go ahead.
Hey, Thanks, good morning, guys.
One of your competitors talked about cost inflation on certain shipments running kind of 7% to 9% as we carry into the end of this year, maybe at the beginning of next year I wanted to get your sense that sounds sort of right what youre seeing in your network and I guess, when you think about that potential level of cost inflation do you think that's sort of the contract reset.
So as we think about next year likely to kind of get close to that maybe a little bit below or above what are your kind of general thoughts about that price cost dynamic.
Yes, I think I don't think those numbers make lot of sense to us high single digit ex fuel on the cost side is kind of where we're at these days it feels like.
<unk>.
Feel good about our ability to.
Go to the customer and demonstrate value in.
It's not like we're bringing a message to them. They haven't heard they are feeling inflation across their business as well, we seek to partner with them and provide good service.
Overcome the cost challenges.
So we feel we feel pretty good about that.
That said fuel as a component of it that enters into all of these negotiations not obviously not all of our contractual customers.
Pay a fuel surcharge.
Similar to what's out there.
National tables that you all can see all of our web site.
A lot of them pay a lot lower than that so you just have to have a negotiation, which really looks at looks at everything in total and it looks at the total price we offer the customer compared to the market. So we'll continue to try to price above that inflation and I think I think we'll be successful.
Yes, I think it's helpful. I think it's important to highlight is that.
Through that you're certainly looking at opportunities to drive productivity in the business.
To more efficiently run your line haul.
City operation.
But at the end of it.
You probably aren't going to be able to recover those loved that level of inflation through productivity gains. So that it really comes down to making sure you're executing in providing service and value to the customer then you're that supports being able to push the pricing thesis, which is really critical.
Because the underlying costs in the business remain inflationary is only so much you can do to deal with that internally.
Okay. That's helpful. And then just following up maybe along those lines what are your thoughts around labor I guess labor availability and maybe your thoughts for for hiring as Youre thinking about some of those terminals potentially coming online in the first quarter. How does the pipeline look and what are your thoughts in terms of head count as we think about next year.
Yes, I think that the.
The recruiting environment is a little bit.
If you talk to us at any time over the last seven 810 years, we've talked about it's always challenging to hire drivers and at five really skilled doc professionals, but it's.
It's maybe a little bit easier than it has been in the last couple of years.
So that helps overall and I would say is you add facilities in new markets. One of the benefits you get out of it as you are the new player in town.
And youre, bringing in.
New growing dynamic business and you can offer sort of qualitative benefits to a driver around maybe a shorter commutes or maybe it's a.
The opportunity to pick a start time or something like that those things are qualitative differences. So that helps it actually we find it's a little bit easier than it often in new markets to add new drivers. So.
I think that we'll be able to staff the facilities.
As they are.
As we need to we feel pretty good about that.
Okay. That's helpful. Thank you very much.
Thank you, we now move to Amit Mehrotra of Deutsche Bank. Please go ahead.
Thanks, Operator, hi, everyone.
Firstly my first question, so if I look at revenue per shipment.
Fuel it was up like 10, 2% in the quarter.
And then if I look at cost ex fuel per shipment. They were up by 13, 7%. So there was a negative spread between Rev per shipment ex fuel costs per shipment ex fuel, which is like the first time that's happened in a long time and so I guess the question I have is are we just at the point in the cycle where.
Pricing off of this high base is just obviously a little bit harder, but cost inflation is still unabated. So the rate expectation is as.
As we move kind of over the next fourth quarter in 2003, we take a pause in margin expansion because of this dynamic with where pricing is relative to cost inflation just get your thoughts on that.
Well I.
I mean I'm not.
Sure, where we go in terms of exact.
Margin numbers.
But I wouldn't pin it all to a fuel discussion I mean fuels very inflationary.
We don't break out the exact fuel cost for you I know you've done some analysis, but we don't give you the fuel expense.
Discretely, so it's hard to put a fine point on it but.
If I think about our opex our shipment in the quarter.
Fuel and other expenses in that line was explained more than 50% of the increase so.
Labor was another probably a quarter of it.
And eat that you've got.
Things like purchase transportation, where we've seen some price cost inflation I'll, we don't expect that to continue depreciation for us because of the investments in the business is running up as well but.
<unk>.
<unk>.
If you think about the fuel component that.
<unk> enters into that pricing discussion and there's kind of a compounding benefit overtime of the work we've already.
So I'm, excluding fuel im not talking about your products look to open about some of the discussion.
Yes, so the cost inflation is running in that high single low double digit range in and to your point revenue per shipment ex fuel were up 10% is covering that where we go from here, we will have to see but it but our intent is to continue to price to keep up with that underlying cost expense ex fuel.
Yeah, Okay that makes sense.
Yeah go ahead, yeah, if anything you have to double down on that now right Amit.
We understand the underlying cost pressures that we have we understand that there is only so much we're going to be able to take out and the productivity and then we know what we're doing for the customer.
Listen that just makes the drives the thesis listen we've got a charge for that sort of level of service and that's where our focus is going to be.
Yes, that's a perfect segue to my second question, because I wanted to understand the opportunity to further improve.
The mix of business as a proxy for revenue per shipment so when I look across the sector.
Psi is length of haul weight per shipment higher or longer than certain peers, but then the revenue per shipment is 5% to 10% lower.
And to me that speaks to the prospective opportunity in my mind I just wanted to get your thoughts on kind of your ability to be somewhat a cyclical I mean youre not immune to the cycle, obviously, but there just seems to be just like.
GAAP between.
Where your mix should be awareness today that it's outside of the macro and do you still feel like the.
The macro is not it's turning but theres still opportunity to kind of more than offset that with some of the idiosyncratic mix opportunities.
Listen amid regardless of the environment is certainly in a more heated environment, maybe it's relatively more straightforward to how you can close that gap I guess, but.
The fact of the matter is is when we stack are our sort of revenue per bill our mix of business up to the national competitors, we stack up our level of service and our service trends the national competitors, we see that we need to fill in the geography to be able to help find the addressable market that is going to pay that gets us to a more mark.
<unk> based right. So I think the opportunity remains for us I don't see anything that says that has tempered maybe it slows doesn't go quite as fast.
But I think our opportunity remains even through a slower period.
I think it's important that we continue to maintain service levels to be able to do that and then do the right things around cost, where we can get productivity, we've got to get that.
But we can't give up on the service level because at the end of the day, we got to be able to charge for it.
Last question for me.
Keep in mind too and then we've got a bunch of people in the queue. We will have to get you on a follow up with additional ones, but keep in mind too that part of our pricing story.
It's a path we've been on that but all of our high quality competitors have been doing the same thing. So there is still an opportunity to close that.
GAAP and if you think about asset soils again for example in the quarter of our revenue.
Bill or per shipment increase in the quarter, 40% of that or so was just from an improvement in the asset soils and we still see the data and feel like we are below market. There. So we'll continue to push that opportunity to be paid fairly.
Thanks, a lot appreciate it.
Thanks.
Thank you. Please go taking our next question, we kindly ask you to limit your questions to one to allow everyone. The opportunity to post a question. Thank you.
Next we have Todd Fowler of Keybanc capital markets. Please go ahead.
Great. Thanks, and good morning, and thanks for the extra time to think about the questions here today.
I guess sticking with the pricing conversation for instance, I look at the contract renewals I'm actually a little bit surprised to see the acceleration to that $12. Two in the third quarter. It's been moving up from first quarter to second quarter now into third quarter and you've got some more challenging comps.
It's probably difficult to tease out how much of that is service versus how much of that is some changes that you've been doing internally the comp structure, but I guess can you give some sense on how much you think is related to those two buckets and then is there a way to think about maybe how much of your book still needs to reprice and I know it comes up pretty Ratably.
What do you think about the large national accounts and kind of the service changes that you've been making kind of the sustainability of the contract levels the contract renewals at these levels. Thanks.
Thanks, Scott I mean, I think first and foremost in order to be able to get any sort of.
Competitive increase of the customer you have to have a.
Compelling service proposition and I think our team is doing a great job with that and then that kind of creates the backdrop so that a focused.
And well positioned Salesforce can go make that pitch to close that so they've got to go hand in hand.
To get that to be able to land in that sort of contractual renewal number, but you know well that.
The customer does it provide a volume commitment with that right. So you've got to continue to perform once you get those contracts in place. So that you don't get optimized or a customer doesn't trade you out for another option in the quarters to come.
But I'd say when I don't have a good feel for what inning. We are in the thing I know is that if I look at benchmark simply benchmark or sort of revenue per bill and kind of normalize it for wafer shipment like the haul versus the other sort of our peer national competitors I still see a runway.
And what's really important is where I see a differentiation is on the service side right. So we feel like we're doing a better job than some of those.
Our claim national competitors and that means that we've got to be able to continue to.
Deliver that to the customer and be in a position that RMR salesforce with something that says listen you're getting great service customer.
These are more market rates for that level of service so.
I still think we're kind of the early innings mid innings, just simply by benchmarking ourselves versus the others.
But I think the key thing is that service trend is so critical to all of this.
Okay, Chris I don't want to put words in your mouth, but it sounds like youre appealing as it's more service stem some of the changes you've done internally to compensate the sales force.
I think its service for sure and I think that a successful sales professional has got a great product to sell and then properly incentive those things worked pretty well.
Yeah, Okay, Alright, I will turn it over I know you've got a lot of people to get too. Thanks.
Thank you.
Next we have Allison <unk> of Wells Fargo. Please go ahead.
Hey, guys its James.
Just wanted to sort of follow up on that question around the pricing gap in the down environment or a weaker volume environment.
How should we think about your ability to close that gap, obviously, youre, probably outperformed peers on pricing, but where you get essentially less pricing and a weaker environment and then sort of on the cost side are there any discrete items the cost that would come out like if you slow terminal expansion should we expect sort of.
Essentially some cost to fall out or sort of capex to follow up just sort of trying to understand.
The change in sort of the puts and takes in pricing in discrete cost items in a weaker environment.
Yes on the pricing side.
Have to see how it plays out but do you think there might even be an opportunity for <unk>.
A lower price to start with and entering into a negotiation with a customer you think our service would be a pretty attractive option for them. So you would think that perhaps whatever volume trends are out there maybe we do a little less worse right because.
We are an option for a customer that they hadn't used us enough before and they use us and I'd say the quality, we provide and maybe we're a little bit lower price, even though we're raising prices. So we'll have to see how that plays out on the openings like Fritz mentioned in his commentary I think.
If we get into the back half of the year and we really saw.
Unstable trends or deterioration in volume trends. There is some terminals that we could kind of put on the shelf and even though they are ready to open maybe not put the opex into them, but but a lot of these the smaller terminals there.
They get to breakeven pretty quickly these days.
Not huge cost dollars to pull out but.
Activity wise people wise workload wise, we could choose to slow them down and wait for a better opportunity.
Got it and just a follow up on a point made earlier in the call I think.
Called out some weakness by end market.
Among retail have those specific sort of end market trends moderated at all or is it sort of continuing and even though the overall book of business of selling season that wasn't any specific call out just in general what you read and we saw some of that with retail customers, but no specific end markets, but now it's just kind of been there for a few months of that.
We haven't seen any further deterioration or anything like that.
Okay. Thank you very much.
Thanks, Dan.
Thank you and we now move over to Ravi Shanker of Morgan Stanley . Please go ahead.
Great. Thanks, good morning, everyone.
Just a quick question on service versus price it with you and your.
Peers have all been saying that Hey, you know, we are getting better pricing for service.
How do we think about the kind of long term project clean there does that mean theres like a Max cap on the pricing you can get because the industry service can only get so good I mean, you're going to be better than perfect or does that mean that you can get better price over time, because not everyone can reach that level, just trying to get a sense of whether that pricing bargain accelerate or.
Tapers off a little bit as your service keeps getting better and better.
Yes, I think specifically to <unk>, if I look at our how we assess the measure service and compare that to the peer group.
We stack up pretty well and then I look at our relative pricing versus that same peer group, but I see that we have a opportunity to close that gap. So I think for <unk> discreetly I think we have some runway there for sure right I just think that.
As we continue to increase our addressable market as we continue to execute on that repeatable service customer expectations can be there and we can be in a position to continue to push the pricing thesis now the industry in total I think that.
I think over time, what's going to happen is that youre going to differentiate on service and I think it's already happening today.
And I think that those that can continue to provide high levels of service and value to the customer I think those will differentiate and gain share over time, so I think that.
As the supply chains.
Onshore change adjust e-commerce et cetera, I think that <unk> is probably in a good position generally for our market to continue to grow it and I think the differentiation there is going to be who can do the best job for the customer and that's where the growth is going to be.
Got it and maybe as a follow up can you just unpack.
Some of the differences youre seeing in the end markets out there.
Consumer or industrial which ones potentially you kind of more at a kind of macro risk going into 'twenty. Three Guinea also briefly comment on what Youre seeing out there in the energy markets, obviously very wide right now.
Yes, I think generally I would tell you are right, we don't have a call out.
For a particular end market or.
EBIT energy for that matter I think what I would say is that the result that we have posted.
It highlighted it really been sort of.
Uniform across our book of business. So there isn't really a callout for a <unk>.
Region, or even a an end market per se.
I think we've seen it.
Kind of trend in that way. So I don't have any insight that we can provide for you there.
Great. Thank you.
Thank you.
Next we have Tom <unk> of.
<unk> UBS. Please go ahead.
Yes, good morning.
You provided some commentary I think on October that I guess, the seasonal pattern was a little bit better.
Pattern was a little better relative to seasonality than September .
But you're down I don't know four 5% year over year, how do you think about the.
Full quarter is that youre, saying like mid single digit decline in tonnage is that what we should think about for that kind of a <unk> trend.
Okay.
Normal seasonality from here would be.
The months kind of get weaker as you go right but.
In terms of a year over year.
Comparison com.
Comps get a little bit tougher so I expect.
It's normal seasonality plays out maybe maybe trends to look similar in terms of per workday analysis and potentially.
Down just based on the comps.
Okay.
<unk> down kind of mid single digit tonnage wise would be consistent with the comments you are providing.
Yes, low to mid single digit problem.
Okay.
I know you've been asked quite a few questions on kind of cost versus price.
I don't think you've really talked about head count and Doug I think you said headcount was up something like 10% in the quarter.
Would you expect even recognizing youre going to do more new terminals would you expect that number to be more moderate in terms of head count increase in 'twenty three so if youre in a flat tonnage environment as head count up 5% instead of up 10, how much flexibility do you have.
And that and that would that would obviously help your cost structure.
Yes, I think it'll be it'll moderate into next year.
I think one of the things you do in an environment like this is that kind.
Can't really manage their productivity and our C kind of.
Uniform around reducing hours and that sort of thing to kind of leverage.
Driver Force.
We might.
Tick up a little bit on the drivers side simply as we look to continue to build density around our line haul network. So that would be in sourcing more of the PT, but I would think that it would from where we have been from a head count growth Youll see it kind of more moderate into next year.
Great.
Okay. Thanks for the time.
Thank you, we now move to Jordan Oligarch of Goldman Sachs. Please go ahead.
Yes, Hi, just couple of quick questions on Taco.
<unk> talked a bunch about costs.
That's sort of where you are right now fixed cost versus variable cost and then do you have a sense for it.
Talks about tonnage, but how revenue per day might be looking as we've moved through October . Thank you.
Yes.
Fixed cost conversation really doesn't change quarter to quarter, I mean, 35% or so of our costs are fixed.
We've got enough.
Some blended cost in there that move it around a little bit depending on where youre at.
With your network and all but that hasn't changed much and then we don't we don't have any.
Pricing is still positive in our view and we don't have.
Revenue guidance after.
The month of October .
Alright ill leave it there thanks.
Thank you.
Two bascom majors.
With our next question. Please go ahead.
To follow up on Tom's question about head Count is can you just clarify is 10% up for year end with the numbers you report a decent approximation for this year and just looking at.
Employees per shipment per day, and other metrics, it's still call. It 12, 15% below where that was in 2018 19 I'm just is there some cyclical fluff with the growth here that that number can start to go back to other levels or is it just naturally as you grow the network.
It can expand into more markets that number needs to be a little lower than it was historically thank you.
In terms of the year end number and Thats, probably about the right trend.
We don't have any other new terminals planned for this year, we've got some relocations were doing.
In terms of the longer term trend, we have to invest not only in the new terminals, but the infrastructure somewhat to support him back here, but like Fritz said at least into next year I think the pace of growth even with the terminal as we've planned will probably moderate some from what we've seen this year.
And I think part of it is where it could.
Could adjust stills were looking at opportunities to build density around line haul so you'll get that in sourcing that would be adding head count there. So.
That's in the mix and you essentially replacing one cost stream with an internal cost straight when you do that so.
That would be part of our sort of medium term view.
But it sounds like with the additions and expansions even with a moderate decline in tonnage next year head count will probably be up just not nearly as much as the last few years, yes, it could be.
Thank you.
Thank you and next up is Chris Kuehn of benchmark. Please go ahead.
Hey, good morning, Good morning critical morning, Doug Thanks for squeezing me in at the end here.
Just a quick one a quick question on the pricing you talked about the pricing gap between peers. I mean is that both ancient accessorial and do some of the accessorial fees go down the supply chain with Lucerne and some of those fees, maybe get less as we go forward.
No.
Thats a soil fees reflect service right and if anything as we've focused on making sure. Those are built into the pricing structure. You are in a position, we're providing lift gates service or inside delivery or hazmat or service into the high cost areas. I mean, those are all <unk>.
Real hard cost that we have to.
Pass along to the customer and Thats part of the supply chain cost for them.
Other our peers, we think one of the biggest differences in pricing relative pricing of <unk> versus the other national competitors, specifically around the areas of <unk>. So as we continue to get those in place.
We have an opportunity to move those to closer to market as well and I think that in.
Even in a looser environment, maybe the pace of change slows, but they're real and so I think that that's something that there is a stickiness that comes with that.
Okay, Okay great.
Thanks, guys.
Thank you.
Next is Ari Rosa of credit Suisse. Please go ahead.
Hey, good morning, Doug Kratz.
I wanted to go back to one of the questions from earlier.
In the context of you've added 11 service centers this year, but system wide shipments and tonnage are flat.
Our improvement so is there a way to think about the dynamics in terms of where the MLR might have been for this quarter. If you hadn't added those additional terminals and kind of what the incremental costs of.
Of carrying additional terminals or is that kind of the wrong way to think about it.
Especially as we think about that.
The incremental costs associated with adding more terminals next year, if we're looking at an environment where volumes might continue to be flat.
Well I think I think it's important to understand the context of terminal additions.
We would never add a terminal with the idea of this quarter or next quarter right. So that's just not part of the equation, adding a terminal means you think there is a seven to 10 year opportunity as specific markets. So you're not thinking about it in that context. The terminals that we're adding right now are yes. They do.
They have different roles for us depending on where they are you will recall that we added a Atlanta northwest terminal in December of last year and that was a critical opening because that actually.
It was important to the Atlanta market, we were able to provide incremental service and we actually took.
Stem time cost out to be able to provide that service. So that actually got pretty quick payback and frankly, the Atlanta market operates better than it ever has as a company are in the company's history.
That's important and if you think about a market like.
Lafayette, Indiana, which we just opened up the.
<unk> 24, and that that terminal that market, we were trying to service that from Indianapolis and that.
That's difficult to do it's an hour from the terminal beautiful facility in Indianapolis now you get to an industrial market that provides potentially some incremental shipments coming out of it and it also we can do a better job for the customer in there and although its in its investment to do that it's de minimis in the whole scheme of things.
So the.
The openings that we've had haven't had a drag if anything they have been neutral to well positive. So.
That's why even in a slower period, we're continue to look at these as potential opportunities for us because not only there is some short term benefit in many cases, but longer term they make a ton of sense.
Got it so just to clarify and I understand of course, the terminal additions are a long term investment, but you don't see yourself necessarily as carrying additional costs associated with those terminal openings.
Listen that the terminals that I just described particularly the one we opened 10 days ago.
Not operating at a.
Company average by any stretch right. It's brand new so we realize that theres a drag there, but we think that over and even in a short period of time, that's not a meaningful impact on the financials. So thus we opened it thus we continue with it.
Okay. That's very helpful. Thanks, so much.
Thank you.
Last question today comes from Bruce Chan of Stifel. Please go ahead.
Hey, Thanks, good morning, Fritz and Doug.
Wanted to follow up here on your comments around the contractual PT commitments, how should we be thinking about that in terms of timing is that.
Something that tracks pretty evenly by quarter as the market normalizes or do those come due in any big chunks.
No I think it's pretty ratable through the year, we're probably 95% or so of our PT is wrong with partners on contract basis. So.
We're kind of taking them as they come in we should add that we'll necessarily see a reduction but the rate of inflation, we've seen around PT cost will certainly moderate going forward.
Got it.
Super Helpful. And then just maybe one last point of clarification, we talk a lot about discreet terminal openings here, but.
How do your terminal expansions factor in to your plans and what do you have going on for the remainder of the year.
Yes, I think in total this year I think we will have when it's all said and done we will have relocated.
Four facilities into new <unk> improved location.
Next year, we've got a pretty busy calendar as well in terms of relocations expansions probably.
If we get everything done we want it probably be up to 10 or so.
<unk> next year and sometimes it's just a better part of town, sometimes it's a buy versus a lease replacement.
Times. Its just you needed you needed more doors, so a number of things drive it but but.
As your business grows.
Volumes grow.
The needs across the network.
Change over time, and that's that's just something ongoing for all of us in this business.
Okay got it. So if we were to think about total number of doors. This year and next year do you have a ballpark of what that might be.
This year that I think when it's all of a sudden downward probably add 5% to 6% of the door count.
<unk>.
And our next year could be similar to that.
Got it okay I appreciate it.
Thank you.
Alright, I think we've covered all of the outstanding questions.
Thank you for your interest in site participation on the call and again I apologize with the having to reschedule due to technical issues yesterday, but glad you were able to reconvene today and tell everyone to describe what's going on with <unk> and with the compelling long term opportunities. Thanks for your time.
Thank you that concludes today's call you may now disconnect.