Q2 2023 Saia Inc Earnings Call
Hello, My name is Chris and I'll be your conference operator today.
At this time I'd like to welcome everyone to the Q2 2023 Saia, Inc earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
Thank you, Doug a cool executive Vice President and Chief Financial Officer, you May begin.
Thanks, Chris Good morning, everyone welcome to <unk> second quarter 2023 conference call with.
With me for today's call is <unk>, President and Chief Executive Officer for tall scrap.
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 I'll now turn the call over to Fred for some opening comments.
Thank you for joining us to discuss <unk> second quarter results, while continuing to manage through an ongoing softer economic environment environment Im proud to present, what I view as very solid results produced by our team in the second quarter of 2023.
On a bright note against easing year over year comparisons the pace of volume declines moderated each month as we move through the quarter and have actually turned positive. So far in July we believe changing industry dynamics over the last several weeks have played a role in this.
Internally, we monitor our customer satisfaction metrics on a daily basis for the quarter. Our trends continued to progress favorably as customers are increasingly satisfied with our service boats in our legacy facilities as well as the new facilities opened in the last couple of years is gratifying to see our team's commitment reflected in the financial results.
Despite an overall freight environment down compared to the prior year, we saw solid results in the quarter total revenue of $694 6 million was down only six 8% compared to last year's record record second quarter revenue. Despite a three 8% fewer shipments of a fuel surcharge revenue being down nearly <unk>.
32%.
Our focus on service pricing and mix of business has been key to offsetting these factors in our yield excluding fuel surcharge revenue improved by two 7% compared to last year, even with the headwind created by an increase in weight per shipment and a decline in length of haul.
We continue to highlight the importance of business mix and freight selectivity and closely monitor our revenue per shipment a key metric for our team in the quarter revenue per shipment, excluding fuel surcharge increased by four 8% benefiting from a two 2% increase in average weight per shipment.
Industry pricing continues to be resilient in the face of negative tonnage trends and we saw an average contractual renewal increase of five 3% in the second quarter.
Our second quarter operating ratio of $82 seven deteriorated 230 basis points compared to our operating ratio of 84 posted in the second quarter last year, but again that was a record quarter for both revenue and or in the industry industrial economy has changed meaningfully since then.
I'll now turn the call over to Doug for more details from our second quarter results.
Thanks, Chris second quarter revenue decreased by $50 9 million to $694 6 million yield excluding fuel surcharge improved by two 7% while yield decreased by four 8%, including the fuel surcharge.
Fuel surcharge revenue decreased by 31, 7% and was 15, 9% of total revenue compared to 21, 7% a year ago.
Revenue per shipment ex fuel surcharge increased four 8% to $287 $9 compared to $274 $6 in the second quarter of 2022.
Tonnage decreased one 7% attributable to a three 8% shipment decline slightly offset by a two 2% increase in our average weight per shipment or length of haul decreased two 2% to 892 miles.
Shifting to the expense side for a few key items in the quarter.
Salaries wages and benefits increased five 7% from a combination of our July 2022 wage increase.
Which averaged four 3% across our employee base and also the result of our employee head count haven't grown by approximately one 1% year over year to support our network expansion over the last 12 months.
Purchased transportation expense decreased by 45, 8% compared to the second quarter last year and was seven 2% of total revenue compared to 12, 3% in the second quarter of 2022.
Truck and rail purchase transportation miles combined were 11, 8% of our total line haul miles in the quarter compared to 19, 3% in the second quarter 2022.
Fuel expense decreased by 25, 8% in the quarter in spite of company miles increasing six 6% year over year. The decrease in fuel expense was primarily the result of national average diesel prices decreasing by over 28% on a year over year basis.
Claims and insurance expense increased by 19, 3% year over year in the quarter and was up 26% or $2 9 million sequentially from the first quarter of 2023. The increase reflects a combination of premium cost inflation and some expense related to development on older claims.
Depreciation expense of $44 7 million in the quarter was 29% higher year over year, primarily due to the acquisition of terminals tractors and trailers.
Our total operating expenses decreased by four 2% in the quarter and with the year over year revenue decrease of six 8%, our operating ratio deteriorated eight, 2% and 82, 7% compared to 84% a year ago.
Our tax rate for the second quarter was 24, 7% compared to 24, 4% in the second quarter last year and our diluted earnings per share were $3 42.
Compared to $4 10 in the second quarter a year ago.
I'll now turn the call back over to Fritz for some closing comments. Thanks.
Thanks, Doug.
Though below last year's first half results overall I'm very pleased with our first half financial results to operate within or in the low to mid <unk> at this point the freight cycles, a testament to the improved operating performance of our team over the last few years, our customer first focus is yielding tangible results across our organization our singular focus on the come.
<unk>, a rallying point for our employees and it's reflected in the record employee engagement survey, we've completed recently with a talented and engaged workforce the value propositions to our customers continues to grow a key component of our market share opportunity as we get closer to the customer and give them a chance to choose <unk> for their <unk> needs more often.
I am excited about the five new terminals, we have managed so far this year. We're on track to open three to four more by the end of the year at the same time, we continue to develop the markets around the other 20 plus terminals.
Over the last two years, although we're excited about the early success of these locations, we see considerable runway to continue to penetrate those markets.
While our pipeline for terminal openings carries us well into 2025 and beyond keep in mind that a key benefit of our organic expansion strategy as it 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 down our terminal expansion activity.
Activity and importantly, we have positioned the company to execute on our organic expansions quickly as opportunities become available finally before opening the call for questions I would say, there's still a lot of uncertainty around the strength of the economy that we faced in the second half and beyond that uncertainty is heightened for the LTM.
All industry through the current well documented disruption at <unk>, we've emphasis emphasized the importance of the customer and focusing on things that we can control so as our industry adjusts to the current disruption and adapt to the evolving economic environment over the coming months my conviction conviction about the long term prospects of saia remains.
Great employees, Great service and a growing footprint all key to securing our position as a long term share gainer in its industry with that said, we're now ready to open the line for questions operator.
Thank you and as a reminder, please press star one to ask a question.
First question is from Jack Atkins with Stephens. Your line is open.
Okay, great. Good morning, and thanks for taking my questions guys. So I guess I'm going to ask the obvious one with.
Really appreciate maybe if we could get a little update on July tonnage and shipment trends, Doug I know, if you want to take that or France, but.
Obviously I would imagine in the first half of the month is different than what you've been seeing over the last week to 10 days. So if you could maybe quantify that a bit I think that'd be helpful as well.
Sure Jack first of all congrats on your summer activities.
Glad to be married.
Uh huh.
Happy for him. So Jim you guys have in April and May numbers, we put that in and out in the early June press release. So the June numbers, our shipments were down one 8% year over year, while tonnage was down two 2% so weight per shipment.
Dip in June .
Five 4% so.
Kind of mid mid June I would say, we started seeing some some lighter weighted shipments some of that some of the activities. We were working on over the course of the year and probably some of that already seeing some.
Freight flow into the network from newer customers as well so that weight per shipments kind of trend started in June has continued here in July on in terms of lighter weight.
So for July month to date through yesterday shipments are up about 5%.
Tonnage is up about two 5% again that average weight per shipments trended down but.
It makes sense to us versus what's going on out there.
Got it and then in terms of just the.
What you've been seeing in the <unk>.
Last couple of couple of weeks, maybe last week, how does that differ versus versus that.
They trends and I guess kind of bigger picture for my follow up question.
Brent as Youre sort of thinking about maintaining high levels of service that is critically important to the <unk> story in your value proposition.
With this disruption in the marketplace broadly like.
Can you walk us through how you and the team are really trying to make sure that you are protecting the network from any disruption from all of this.
Sure.
Yes, good questions.
What I would say is that first off July July 3rd.
Sort of the hanging holiday right before the floor that was a Monday at your call. So that was a little bit of a lighter ship.
Shipment day that was a bit challenging from a cost perspective, and such and so that first week of July was sort of holiday impacted but it is every year.
And I think we've seen the business levels trend more favorably in the last two weeks.
So that's been a positive trend I think the as.
Been a big contributor to what we're seeing so far in our results in July but I think the key thing for us is that focus on customer and maintaining the service levels picking up the freight managing.
Freight are managing our customer base to make sure we understand what it is we're picking up what the requirements are what.
Can we execute on that and significantly in making sure that the economics work with this so we feel very strongly that we've got a tremendous service offerings. So it is critical to us to maintain that service offering and it's also a critical critical to us to make sure that.
We are compensated appropriately for that high level of service customers. This is a unique opportunity.
In a disrupted time that we can show customers. A this is this is what you get with <unk>.
Thats differentiated high level of service and we think that if we execute on that well.
We can hang onto this service will tell the share will come to us over time.
It's really been our long term strategy and maybe the disruption here in Alaska.
A couple of weeks has helped us accelerate that a bit but we'll see how it plays out there's a lot that still could change here in the next number of weeks.
But our focus on customer first I think is going to lead us through this.
Okay. Thanks, Thanks, guys I'll pass it on.
The next question is from Amit Malhotra with Deutsche Bank. Your line is open.
Thanks.
Hi, Doug I guess, maybe I'll just ask a quick one on the operating ratio as you moved some ticket at <unk> I know you guys probably about wage increase in the third quarter that maybe hold the line, but you've obviously got some.
So our momentum on volume, which so Doug if you can just talk about our expectations of <unk> and then and then Fred what is the what is what's happening at yellow.
Do you feel like the overall price of the book of business that you guys see contract rate renewals I know you talked about 5% last quarter, but does this give you an opportunity to kind of.
Accelerate the narrowing of that revenue per bill appears that you've been so focused on just trying to think what the what the pricing opportunity is on the existing book of business.
Sure I'll take that first moment.
So yes, you're right July is kind of annually. Our time, we think about wage increases and things like that so thats taken place the average we'll call it right around four 5% across the workforce.
And historically I mean, if I'm just thinking about the last five years.
Got to take out the.
2020, Covid year Q2 to Q3 as it makes sense.
2021 was a pretty unique here in the back half as we really.
It's an opportunity to work on some things and improve things around accessorial. All we took a really big step up there and there's still opportunity there, we're still grinding that out each quarter.
Was that a kind of a unique quarter, but a file.
If I look at the other quarters, it's usually meant something like a mid mid 100 bps kind of deterioration. So I think we've got one month in life <unk> said a lot of uncertainty on the top line certainly over the next few weeks, but with a month under our belt 100 to 150 basis points in our view Q2 to Q3.
It would be pretty pretty solid work so.
Like I said, we're less than a month in our belt.
We're comfortable with.
Yes.
The answer to your question regarding pricing environment.
<unk>.
Under the current sort of disruption if you have a low price competitors exit the market I think that that first.
First thing is the customers as that gets shifted around customers that have service expectations naturally.
Would gravitate towards side, because I think we're doing a great job.
For us a double down double down our.
Frankly, our responsibility to make sure that were paid for that high level of service.
<unk> captured those charges I think it's.
Because the customer gets a lot of value for that so we've got to be very very diligent around that I think will happen over time in the industry.
<unk> seen the discipline across the space I think that probably continues I think that.
To the extent that the underlying costs in this business remains inflationary I think those factors are still key to all operators not just size.
<unk> paid for those investments and I think that it's.
As we look for ways to continue to close the gap to make sure we're getting paid at market or above market because of the service levels I think thats an opportunity that we've got to continue to push for a drive or I think the environment with a with this disruption that's there now.
Maybe that helps us debt.
People will have the opportunity to experience what great services.
Yes, and I guess, just as a follow up kind of very big picture if rates because.
Over the last five years the performance the fundamental performance has been so so great and obviously the equity value of the company has.
Has responded accordingly.
If there are people that are new desire today, new to the stock due to the company new to you guys.
What would you frame kind of the three or four or five year opportunity to be from a revenue perspective.
Come out from a margin perspective, because you guys have.
A lot, but you talk about the runway I was hoping you can kind of like.
Help us crystallize that a little bit in terms of what you think the opportunity.
Let's see.
The opportunity for size.
Difficult and I think if somebody studies the industry and you study.
What the sort of margin opportunities are with best in class looks like.
And when you look at our progress over the last couple of years and you look at our performance through.
A bit of a slower part of the freight cycle right now we're able to operate in the sort of low <unk> or that's a significant execution accomplishment for <unk>.
And I think in a market, where maybe we see a little bit more economic growth.
I think the opportunity for Si to grow this business well into the Seventy's or is <unk>.
Meaningful I mean, it's it's something within our reach at what's critical that and this is when we talk about this all the time.
Taking care of the customer our customers got to get what they need from side and when when those customers get that they understand what that value is that helps our pricing story that helps us close our pricing gap versus the <unk>.
<unk> players in the industry and I don't see any impediment to us getting into the mid seventy's or better.
We're excited about that opportunity.
Yes.
Hey, Amit just to close the loop I know you know this and I know, what youre asking but just for everybody on the call to be clear in Q2 to Q3 or usually.
Deteriorates, a little bit because of that primarily because of that wage increase we discussed so when I said 100 150 basis points Q2 to Q3, that's a degradation MLR. So thanks, Amit we got to get onto the next one yes. Thank you bye bye.
The next question is from Chris Wetherbee with Citi. Your line is open.
Hey, Thanks, good morning, guys.
Just wanted to pick up on the comments you were making about the month of July just maybe if you could get a little bit more granular it seems like.
The run rate or the acceleration you saw somewhere in the one to 2000 shipments per day type of level just wanted to get a sense of maybe what the exit rate was here in the month of July as you can get a sense of what that sort of market inflection might be look alike.
<unk> said I mean really the.
A couple of weeks looks a lot different in the first couple of weeks of July but normally with seasonally we see a little bit of a step down from June and July and obviously that hasnt been the case this month, but.
It's hard to parse everything out the last week of the month should be better than it was.
And then you've got some some freight going on out there that is coming into us news. So.
It's been it's been a meaningful step up but will probably have to wait till you get the full month trends in early September before we really care to say anymore on it.
Okay. That's helpful. Although when you think about.
So it's a little openings and obviously the potential for some some assets may be to be available I guess as you look out into the back half of the year can you give us a sense of what the plans are or do you have <unk> plans that are specifics he can run through and maybe what the opportunity could be from a footprint expansion standpoint.
Yes.
Early to make the call on what what the real big opportunity could be.
Three to four I will give you a little bit of color of the three to four that we're opening the balance of the year.
Two of those were ones that became available to us in the last few months. So this is a pretty fluid environment that we're in where the assets become available.
We feel really good about our ability to identify.
At purchase facilities close them get them into our system. So.
If more opportunities were to become available.
I think we can move on those pretty quickly I think we can integrate those opportunities into our network pretty quickly.
I would suspect if there were an influx of real estate that became available in the second half of the year likely wouldn't.
Get.
Into this into the system. If you will this year probably turns into next year assets and the other thing I would point out is that as we look at our pipeline of opportunities going forward we have.
<unk> pins on the map if you will that we have identified that maybe it's.
And opportunity, but new assets become available we may switch to something else that gets us into the market sooner or we may have to pause and say well we want to access to <unk>.
A piece of property or a location that is kind of go through transition. It may take us longer to get there just simply because of administrative challenges or seller challenges whenever that might be.
I think what's important to takeaway out of this is that we have the ability to operate pretty quickly around identifying facilities opening them.
Getting them in line with <unk> culture and service.
Pretty well.
Our competency for us.
Okay. That's helpful. Thank you I appreciate it.
And the next question is from Tom <unk> with UBS. Your line is open.
Yes, good morning.
Wanted to see if you could.
Fritz if you could offer a little bit more perspective on how you think this transition.
The disruption takes place.
Do you think that had some of this flows through brokers.
And it's kind of we got to get the freight covered quickly, but then what flow through could shift around again.
Or do you think it's like it's really important to lock in these shipments.
And then that would kind of be sticky with you and and you can maybe show the service and price up a bit over time.
I guess the other piece within that is.
If we assume this was less service sensitive freight.
Can you get.
Can you just price it where you want to or is that kind of how does that work I think the assumption is the yellow freight would have been less service sensitive. So I guess, that's a couple of elements, but just trying to understand how you think about that process of the freight coming in and the quality of freight.
Yes, so I think what we have.
Mentioned earlier that there is.
Still as we're thinking about revenue for the balance of the quarter, there could be a little bit of flux. There is the.
Displace freighters disruption kind of plays out because listen we're our view of this is certainly there are accounts that we have today.
Is that.
Have approved several.
LPL providers in that mix, so if one of the.
Providers exit certainly that freight gets distributed around to others.
That's an opportunity for us.
Joseph you have some a pick up of economies and opportunity.
Provide that service the customer and sell and earn that business and keep that business. So those are certainly possible. There also a fair amount of that business that has gone through.
Sort of three pls.
Brokerage opportunities to the extent that.
Those make sense for US you know, maybe thats something that stays with us so.
It's really important for us in this time in this sort of.
As defined that freight that makes the most sense for site.
We're not in a in the market to chase volume we're in.
Market.
<unk> profitability and to drive returns and I think that that will be our focus and I think what you would see is that as we pick up freight if we think it makes sense over time, we will keep it if we think we need to make adjustments to the right or make sure that we get all the accessorial charges that are required.
Required we will do that.
That works and I think that benefits us over time.
Right Okay.
And then I appreciate that and I guess for the second question would be it.
It seems like you are from a balance sheet perspective, you have very little debt, you've got a lot of cash.
Despite having a pretty strong capex program this year.
Im wondering if you said well, okay that 24, just a bunch of attractive term and all of a sudden we really got to hit the gas on this would you consider kind of ramping up further in issuing debt to kind of go beyond what youre strong cash generation allows or how aggressive could you be in terms of being opportunistic on <unk>.
<unk>, maybe in 'twenty form not necessarily 'twenty three.
Tom That's a great point, you bring up I mean listen this balance sheet is positioned.
To grow right. So we generate a fair amount of cash we have cash position right now.
The idea with that as they provide us the sufficient.
Powder, if you will to accelerate our growth if we see that opportunity. So if the opportunity was attractive enough that it perhaps warranted.
Leverage we'd certainly consider that but at the same time, we're generating cash we found that.
We've been able to fund and find facilities and built facilities frankly.
Out of our cash generation, what we have right now is really an eye to not only the real estate that we'd have to purchase but also the equipment that we would have to supplement our fleet to be able to.
Match that with growth.
Okay, Yeah, great seems like you're really well positioned thanks for the time.
Thanks, Tom.
The next question is from James Monaghan with Wells Fargo. Your line is open.
Hey, guys. Good morning, just actually wanted to just sort of talk about some of the volume trends you'd called out.
Sort of how much of that might have been cyclical versus sort of what is sort of like essentially more of the market driven part of it.
Hello, and then also as you can.
Sort of like think through this sort of reallocation of share from you.
It's been a source of share over the past decade, and a half as we think past it.
Do you sort of think that the LPL environment.
Had to slow its growth a little bit given that there will be that source of share or are there still sort of opportunities.
Modal share or other weaker competitors, where volume growth can continue to grow it.
Impressive rate.
Yes.
I mean the.
Current environment in terms of the competitive landscape certainly fuels. This pickup we've seen there is no question I mean, we've got some internal sire focus opportunities. This year that we think we are starting to materialize in terms of.
New customers some some different verticals and we think we're starting to get a foothold.
Remember, we've opened 22 terminals in the last three years and some of those in middle markets, where we've had selling initiatives that we are gaining traction on so.
We'd like to thank some of our initiatives are starting to fuel the.
The volume, we're seeing and kind of offset some of that cyclicality that you mentioned, but in terms of green shoots in the economic backdrop, we were seeing over the last couple of months.
We haven't been calling out any bright spots on the underlying industrial economy now.
Forward.
How <unk> positioned.
We think we think <unk> stands to benefit really over some of the supply chain trends over the next decade and beyond as you think about near shoring and what that might mean.
Cross border moves with Mexico.
And even Canada and the role <unk> will play in smaller more frequent shipments, we think that bodes well.
<unk> is well positioned to continue to benefit from the growth of.
Residential deliveries and final mile activities.
As consumers have gotten more and more comfortable ordering.
Things online instead of visiting bricks and mortar retail for example.
Some of those things are heavier weighted in beyond what a parcel carrier can do so LDL ends up playing a role in that so.
We are well positioned to circulate.
Participate but.
Terms of the immediate kind of economic backdrop, we werent, calling out any any green shoots.
I think to add to Doug's comments I think if you looked at our relative performance versus.
Our peers in the rest of the space in the last.
Quarters or a year.
You've seen that we've been in a position where our service is differentiated and our performance, we probably outperformed some of our peers from a ship.
Shipments and tonnage perspective, and I think that momentum I think going forward is a significant part of what will drive our success.
So I think.
That's an important distinction as well.
Got it thank you.
The next question is from Jordan.
<unk> with Goldman Sachs. Your line is open.
Hi, I guess a couple of questions. One I was wondering if you could maybe give some sense for how your yield ex fuel look as we move through the quarter and how it feels in July maybe even especially with that step up in volume that would be the <unk>.
First question. Thanks.
Yeah in terms of yield.
The weight per shipment came down.
It was kind of a <unk>.
Positive tailwind call. It like later in June when we started seeing that in.
And on here into July now Thats, the way procurement coming down its a negative to revenue per shipment. So we have to keep an eye on that and make sure that.
We're getting properly concentrated with so much of that yield is is mix related and that could be.
Our weight and length of haul, but it can also be <unk>.
<unk> and direction, the freights, moving and also a lot of things flow into yield, but like <unk> said I mean, we think about is the pricing environment and Thats remained good.
As the yield up as much as the <unk> is our contractual renewals are running no but pricing is positive and that's what we're bringing to the bottom line. So.
Yes, I'd say you got to watch that weight per shipment for example of that continues to trend negative in the quarter like we've seen in July that helps your reported yield.
Alright, and then sort of second question is you mentioned sort of the normal degradation on <unk>, but just curious what Watson.
Make it or I would think there is a chance for it to do potentially.
Okay.
You said an amount better as is theres, the sudden volume step up and I imagine at least some floor on price given.
Uplifting prices, maybe a competitor kind of goes away. So curious your thoughts on the variability around that normal or Jack.
Great. Thanks.
Yes.
Fair point I think.
One of the things that we're pretty early into this.
But certainly there is a path to beat that right I mean, if we continue our core execution continue to manage mix keep.
Keep our costs in line.
Certainly think theres an opportunity we could beat that.
Our shipments and tonnage trends, we kind of keep that in perspective in the right place I feel pretty good that we could on the other hand.
It is because it's a period of disruption.
We've got to be real careful about.
What what the mix of business looks like and what the relative profitability of any freight that we pick up our new customers are.
That's.
That's pretty significant to our value proposition is.
We match those customers with.
They understand what that service level is and what that what that means from a pricing.
Pricing perspective, so, yes, I think theres a possibility we can beat it.
But it's not we still got to go execute.
Thank you.
The next question is from Ken <unk> with Bank of America. Your line is open.
Hey, great good morning, Doug.
And congrats on great results and working through this process here.
Do you still feel like you have 20% excess capacity is that kind of.
Adding the five service centers and looking at more maybe just talk about the capacity ability to grow here.
Hey, real quick.
Apologies on that pronunciation, we all know a texture, but you werent in the QRS, So I didnt give a chance to give Chris.
I've heard of all different shapes.
That's all in May.
Alright.
If we.
We think about it right now, we'd probably got around 15% capacity across the entire network and Ken I think.
Important.
Focus on there because of where we are in our sort of network maturity. There are some facilities in there that might be at lower capacity levels and we've got some that have been opened in the last two years.
They have 60% capacity so the opportunity right now for US is to continue to fully utilize the facilities that that we've got in place that we've invested in.
That's a great opportunity for us to differentiate in a market.
And for fine that new customers. So that's there for us.
<unk>.
In the larger areas in the network, where we're fully utilizing those assets are approaching full utilization we've got investments in place.
We will upgrade some of those facilities, even this year so.
We feel pretty good about where we are.
In a disruptive environment like this the challenge and this is not unlike what we've experienced over the last several years, which is the.
Please note where the freight is going to come from so if I give you the debt network capacity number that's an average across a bunch of it in some places we might say you know what we've got.
You have to manage the capacity in other places or SaaS go get the freight.
So I.
I guess I wanted to follow up on an earlier question right, which is really some business gets assigned right away and maybe from your experience how long does it really take to settling right because theres. This chaos that that needs to be assigned right away and then and then Frank gets distributed and maybe talk about how much business, John Donahoe multiyear contracts versus.
How quick you can move that pricing in the base.
Yes.
Some of this.
They're obviously existing customers.
Everybody in our book I mean by and large everybody's on a one year sort of pricing agreement.
So I think that.
<unk> got to make sure that the pricing that's in place we feel good about it but as we pick up the revenue on an account we may not have had the account earlier are larger percentage of the.
Business, because we didn't have the pricing that was may be attractive to the customer now they're they've moved the shift of freight to us.
That's our pricing and we're satisfied with it so.
The other piece and Thats, probably more like the national account type business, but then the other the new customer or the customer we've done a little business with or maybe weave.
Opened up new lanes with the customer those are the ones that you got to keep an eye on to make sure you understand what it is the freight characteristics look like what the.
The freight youre handling what that customer looks like.
And in that case, you might manage that out or try to manage it differently in the short term. So I think it's.
As we go through the industry goes through a settling process around this disruption and freight kind of moves around it the other competitors or to us.
I think youll see a fair amount of.
I don't know, if I'd say churn, but some movement over the next several weeks.
Great.
Thanks for the thoughts guys I appreciate it thanks Ken.
The next question is from Jon Chapell with Evercore ISI. Your line is open.
Thank you and good morning.
Quick answer for the previous question about capacity being different in different locations and most of these new terminals that you brought on and there's been a lot of them haven't been running it at the profitability of the entirety of the network and there was a thought process that overtime, we would ramp to that does this what's going on in the market today accelerate.
Kind of the mark to market of the profitability across the new terminals or is it completely dependent on the geographic mix of freight.
Listen.
It is dependent on both but.
The fact, the matter is is that this the opportunity to grow the business more accelerated pace right now that that helps us drive that.
Leveraging those investments building the density around our line haul network are pick up economies all those sorts of things so yes.
Additional well managed growth here is a.
Potentially enroll adder for us.
Okay, and then my second one kind of mixing the short term with the long term.
Construction has been thrown around a lot I would imagine youre going to flex PT as you get this acceleration of shipments, but as you think about more permanent resourcing, whether that be head counts.
Equipment et cetera, how are you thinking about whats been happening over the last couple of weeks and how youre investing above and beyond just the terminal expansion thats been on the radar for some time.
Yes. So this is this is where I think that our ability to manage our line haul cost.
As important as it's an advantage for us.
We feel pretty good in a very comfortable flexing.
Our PT up and down as we need to to meet the service requirements of our customers.
If you recall, if you've followed us over the last couple of quarters, you saw us in source as many miles as we could as we saw volume declines in the sort of the Q3 Q4 into Q1 period.
Now as you as you ramp back out of the.
Kind of more of a growth mode, you've got to be able to scale that line haul network and that means you've got a fully utilized the drivers that you have to add drivers and markets. Because now if we're at these growth rates with these new markets, we have the opportunity to scale that and add drivers so that.
That's good but in the interim we're going to meet service, where we need to utilizing our purchase transportation partners.
But the key part of that model is that it's got to make.
Since the meeting customer expectation and it's got to be cost effective.
And those who put those two things together, we feel pretty good with our ability to flex up and then we will continue to supplement that with adding more of our own drivers.
Got it thank you Brett.
The next question is from Eric Morgan with Barclays. Your line is open.
Hey, good morning, Thanks for taking my question.
I wanted to come back to your comment on closing the pricing gap to the peer group just curious how big of a focus that is for you right now.
Ken some of this disruption going on be a catalyst to get there. It's a parity faster than you might have thought otherwise.
Not saying really near term or anything more as the dust settles.
Is that an opportunity or is it going to be kind of steady.
Steady approach over time.
Well listen.
We think about the service that we provide to our customers on a daily basis and as a result, we think about making sure that we get paid for that service on a daily basis now.
If youre following us closely we know that we have our organic expansion thats going on were adding terminals, providing greater which is really about providing higher levels of service to our customer.
Moving closer to the customer providing that.
Hitting those touch points and those pickup or delivery times that are important to the customer and making their transit times. When you do all that you have the opportunity to get paid for it and as we continue to grow we become closer and closer at closer parity to our larger national peers.
We see what their average revenue per bill is and we look at our service levels, we know what it looks like with the competition.
So the opportunity for us to continue to drive closing that gap is critical as part of the value proposition of what we're doing.
So if anything this environment I would expect it will we'll double down on that effort I would expect our peers would also do that and I think the environment will continue with what we've seen here in the last number of quarters, even as things have slowed down.
We've seen the discipline around.
The competitive set around pricing and I think that's important.
Thank you.
The next question is from Jason Seidl with TD Cowen Your line is open.
Hey, Thanks, Rob it or Hey, Doug Hey, Fritz Doug I wanted to make sure I understood. What you said about the or on a sequential basis.
100, 100 to 150 basis points of degradation that is the typical <unk> that you see or that's what you guys are assuming and if thats. The assumption does that include more freight from a yellow bankruptcy.
It's pretty typical.
If you go back and you on an average you got to start taking a couple of things out so thats, where I tried to do I think the math of it says it's been 150 to 200 horse if you adjust and take out the COVID-19 year.
In 'twenty, one but just.
Just based on what we've seen in July .
Very little clarity on where this goes over the next few weeks actually but based on what we've seen.
We think we can we can do that so maybe 100 to 150 basis points makes sense.
Maybe it's a little better than the historical average, but like I said that average is kind of our math because we take out a couple of things, but driven we know the wage increase has been in place. We are starting to use some driver hiring bonuses again, we haven't used in a few quarters. So factoring in what we now know month to date in July we think.
100, 150 basis points is is doable.
Given what happens on revenue is still.
Not clear to us.
Okay, well I appreciate the clarification and follow up on pricing. We were hearing back in June that LDL carriers were sort of pushing off some of the negotiations with customers based on the fact that they thought there could be an issue with yellow.
Was this the case and has that.
Any fruits on a pushback.
Yes.
We were pushing anything back I mean listen it or our view of this is that we've got to get the pricing in place.
I don't know that we get there maybe some anecdotes out there, but we haven't seen anything like that I know that there were customers that maybe saw some of the disruption and we're looking to secure their capacity and certainly we were part of that.
Making sure that that was all to.
To the extent that it made sense for US we were.
Negotiated those opportunities.
Okay makes sense I appreciate the time as always gentlemen.
Hey, Jason.
The next question is from Ravi Shanker with Morgan Stanley . Your line is open.
Thanks.
Doug.
Obviously this is a potentially very large business opportunity for everybody in.
And maybe kind of a jump ball right. Now obviously you guys are staying pretty disciplined on your pricing returns, but are you seeing any other players in the space who are fairly aggressively going after this business or do you think everyone sort of waiting purpose alone.
Yes, I don't have a call out there for you I would tell you that I think it's probably still early innings on on how things shake out, but I think the one thing is fundamental.
For all <unk> providers regardless.
We're positioned in the market. This is an inflationary business and volume does not generate incremental return unless you get the appropriate pricing with it I think we've seen how the industry has played out over the last few quarters as volumes decline you see a lot of discipline around that and I think it's because of the underlying.
Basis of the business, so I don't anticipate any.
Price led sort of volume Chase if you will.
Got it and maybe switching gears and talking about a cycle you guys. I think you hinted that youre not seeing too much out there in terms of just cyclical improvement.
Can you give us some goalposts like what what are you going to be looking for what are your customers telling you in terms of inventory levels looking at when do you think.
People are going to cycle, driven core business grows as well.
Well I think the underlying growth that we have in our business before kind of this sort of last few weeks has been on our own competitive differentiation. So I think that's been positive.
I think that.
As we look at the more sort.
Macro indicators are out there.
I think the GDP numbers look.
Yes, it's probably favorable right now and I think if we see that develop in the second half of the year I think thats, probably the green shoots that folks are looking for.
Think that our customer set.
We don't hear anything, particularly new one way or the other it's more of sort of it tempered environment I don't think.
It's a recessionary environment or anything like that I think it's just a temporary environment versus the prior year kind of where were so.
Don't think we have anything new to report there but I.
I think as the second half develops or if we keep the recent sort of economic trends I think that's positive.
Understood. Thank you.
Okay.
The next question is from <unk> majors with Susquehanna. Your line is open.
Fritz Doug you've.
Probably spoken about yellow situation with investors in every meeting since the beginning of June .
You've heard what we're asking on conference calls this quarter, both within LCL and outside of it I'm curious from your perspective, what does the investment community getting right on how this situation.
Could and May impact your business and are there places, where we're kind of missing the forest for the trees on short term midterm long term impacts from the way you see it. Thank you.
Well I think.
The highest level in the industry when you.
Or a potential top three player exiting.
Potentially.
Wait for the final verdict there but.
I think that obviously that is that freight is going to go elsewhere in the business that it's going to go to.
It's going to find its way not necessarily evenly to everybody it's going to go to.
It is going to match the service requirement of the customer and I think maybe there is a player that's got a lower service level. They maybe they take an outsize.
Percentage of that business potentially.
Maybe a display displaces a customer that.
Has it been a higher expectation around service and then that kind of makes its way around to other players in the market, but I think generally people understand.
That if you displaced.
The large player it's going to get redistributed in the industry I think the key thing to understand is that whatever the fundamental value proposition is.
Remaining players I think that that that will match toward the freight ends up and I think for <unk> I think the fundamentals side are quite straightforward, we have an opportunity to continue to maintain high levels of service continue to get the pricing and margin structure right in the business. There is a significant growth opportunity for us in this.
In this environment, there's probably an opportunity for us to grow a bit faster rate than what we have been.
You've been so adamant and mentioning serviced and revenue quality and all of your answers to this situation I mean is the message.
You'd probably rather take less than more of your pro rata share initially in.
And hope some of that comes back when they are not satisfied with the service they're getting it brand access is that really what we should take away here.
I think that if you followed sire.
Over time, I think the fundamentals of our business. We have never been one that are in business to chase market share or volume. Our focus has been on generating returns of this business and so.
We talk a lot about.
Our internally around how we are managing profitability. So this this is exactly the same sort of scenario.
<unk> maintained a high level of service.
Customers expect that and our customers expect that will be willing to pay for that service and that that's the winning proposition for us. So it's not necessarily who can get to be biggest fastest.
Generating those returns that we see and it's pretty apparent when you look at the other sort of public peers that are out there you see what that level of performance looks like in that there's no reason for us not to try to pursue that and that's where we think the big value is in our business.
Thank you for it.
The next question is from Stephanie more with Jefferies. Your line is open.
Hi, good morning, Thank you.
I wanted to touch on actually.
Our performance for the second quarter.
I was hoping that maybe you could give a little bit more color on just the I think just given the weak top line environment.
And then it seems like you.
It exceeded our expectations, but I think a little bit better than you probably called out back in <unk> with the performance falling more in line with historical seasonal average. So maybe you can touch a little bit on the dynamics or levers that you guys called out what happen to kind of be more in line with seasonal trends. Despite what kind of continued to be a weak top line. Thanks.
Yes.
Say.
Primarily we were really pleased with how we.
No.
To the extent, we could how we controlled mix and revenue per shipment came in real positive ex fuel revenue per shipment number up.
Four eight in the quarter.
It was really solid.
I think we had a solid may and then like I said the back half of June you normally get that month and quarter end kind of step up but it was it was it was solid and we might not have baked that into our expectations. So to the extent that you've got some more of that volume in.
Addition from more shipments at pick up from customers things like that and give you some opportunities to be a lot more productivity you get some cost economies in the network when you do things like that so.
You get some favorability here and there on some things but.
I think primarily it was just.
Probably a little bit better.
Activity and operational success than we might have seen.
Our weeks into it.
For the quarter.
Great. That's helpful. And then just a quick follow up you talked a lot smaller just about the ability to be opportunistic with terminal expansion here in the coming in the coming months any change in strategy opportunity with senior decision to lease or buy by additional terminal.
Our first priorities, if we find a market that we want to be in our.
Opportunity, we'd like to own or if it's cheap strategic facility, it's got sort of a.
Maybe a 10 year life.
We think about volume trends over 10 years, when we make it.
A decision to buy an asset.
If if for whatever reason, we can't buy the asset.
There is an opportunity to get an attractive lease we're willing to do that that's not our preference, but if we're willing to do that.
Attractive lease would be something that we can get it we've got a view as to what the longer term costs are and we can kind of build a business around it.
But strategic assets for sure we want to buy those.
Maybe ones that underlying market, maybe it's a little.
Available for sale.
<unk> would like to hold onto it in that case we.
We're finding the least so long as.
The economics work.
Great. Thank you so much.
The next question is from Bruce Chan with Stifel. Your line is open.
Hey, Fritz Doug Good morning, and congrats on the result here just want to follow up on an earlier comment where you mentioned the national accounts business and I'm. Just curious on that topic are you seeing any more I guess early activity or early demand on the national account side.
Field account side with the <unk> side or has it all been pretty balanced so far.
I think that it's.
There are a little bit of color there as if we're in an account that maybe we share across multiple providers those baby we saw.
That volume come maybe a little bit more.
Sooner, if it's a field or maybe that those accounts maybe don't have.
Multiple providers I think we're probably still seeing where that's going to develop.
That's still early on that it's rolling two weeks or three weeks into this.
That makes a lot of sense, but when everything kind of settles out and the dust clears you wouldn't expect any outsized share gain in any one of those categories necessarily.
I'd.
It's way too early for me to make a call on something like that okay.
Okay Fair enough and then just a quick follow up here you brought up the near shoring opportunity and you also talked about planning for 10 year volume trends as we think about near shoring and potential expansion beyond your current plan can you talk about maybe what kind of cross border presence you have and whether there is any appetite to ramp that up.
We have.
We do have across border presence.
Typically south its smaller than we are.
Wed like I think over time, there is an opportunity for us to grow that.
That's part of the long term strategy for sure.
Okay, great. Thanks for the time.
Yes.
The next day.
The next question is from Christopher <unk> with the benchmark Company. Your line is open.
Yes, good morning, Hey, Doug Thanks for getting me in here.
Doug you and I have talked about your focus on increasing revenue per shipment some of this newer volume.
Lower weight.
And lower revenue per shipment. So how do you balance that with sort of your longer term strategy and your ability to manage profitability.
Yes, I mean, our way, it's still up quite a bit over the last couple of years and like you said I mean, some of that was really driven by a focus on that that good industrial weighted freight as we call. It but we are increasingly have.
National account customers that may be in retail for example that did see the quality and the service we provide.
Maybe some limited choices on folks that can handle.
Leasing volumes with that kind of service they are asking us to do more and more from them and sometimes thats lighter weighted shipments. So it's not that it's.
Dramatically lighter weighted in terms of move in the average but.
<unk> said I mean, we're going to work.
All of the business form, but it needs to be at the appropriate rate. So.
I don't.
<unk> weighting itself as the sole factor in that negotiation, it's the mix of business. Its the volume you get when you show up to pick up a shipment as if they are lighter weight that you can get two or three and thats, usually a pretty good business. So a lot of things factor into it.
Okay. Thanks.
The next question is from Tyler Brown with Raymond James Your line is open.
Hey, good morning, guys.
Got it.
Hey.
Curious on what the labor markets look like right now how are they and then given all the work that you've done from a cultural perspective over the last couple of years, how do you feel as an employer of choice and do you think you can add human capital quickly.
Yes, good question Tyler.
I think the.
Certainly.
The labor market around drivers such as competitive and I don't know that thats.
Change the demographics are necessarily in our favor.
But I would tell you that I think one of the things that <unk> has done a pretty good job of over the last several years is that <unk>.
Success kind of compounds, a little bit and people see.
Kind of what the opportunity is and what our trajectory is so around being able to recruit people. That's been helpful. We've also made.
Pretty substantial investment in our human resources recruiting effort and really sought to professionalize that to give us the opportunity to scale.
The business and those have been an important investments.
And then the emphasis and the key thing is that.
Throughout all of this employees want to be able to see we can talk about values and those sorts of things, but they want to see values in action.
That I think we've done a good job with that and that's helped us on the recruiting front people know what theyre going to get when they come here and I think that that's been positive and I think that's going to help us through this will be a challenging time as we grow as we grow volume through this disruption.
That being able to replicate that is going to be important.
Yes, absolutely it's been a good story, but hey, real quick I want to you can.
I touched on this and this is a bit of a technical question, but.
But again you guys you guys have put so much work into the network and line haul design over the last couple of years.
I'm just curious how much flexibility you and Patrick Sugar think there really is if market conditions changed quickly you mentioned excess capacity in some market tightness and others do you feel like you can tack in maybe AD breaks and less and less like call. It traditional markets basically what I'm asking is can you create it.
Additional capacity.
With what you have is you supplement that with PT at least in the near term.
Oh absolutely.
We absolutely are doing that as we speak. So this is where I think this is a little bit of a <unk> secret sauce here is our line haul team and we know how to scale. This we know how to place. The PT, we know how to schedule as the data analyst advanced sort of data analytics, we've put in place to be able to handle this.
Hey, this is challenging for that team, but it's well within our tool set to be able to adapt to this I mean, there was a time.
567 years ago, where if you had an event like this happens I don't think we would be able to operate through it and as you saw during the pandemic and even all the way through now our ability to adjust up and down and match what demand patterns as that's allowed us to be successful and meet those customer expectations. So I think that.
That's what's going to help us get through this so.
I am excited about us deploying those skills and kind of Adair.
Adapting our line haul network to our customers need.
Yes love it alright, thank you.
Thanks Pat.
Yes.
We have no further questions at this time I'll turn it back to the presenters for any closing remarks.
Terrific. Thank you everyone for calling in and taking the opportunity to hear about the science story.
We're really excited about the next couple of chapters in the story and look forward to giving everybody an update at the end of next quarter. Thank you.
This concludes today's conference call you may now disconnect.
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Yes.
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