Good day and welcome to the Saia, Inc. Hosted First Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Doug Col. Please go ahead..

Thanks, Olivia. Good morning. Welcome to Saia's First Quarter 2021 Conference Call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. 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 the actual results may differ materially.

We refer you to our press release and our SEC filings for more information on the risk factors that could cause actual results to differ. I'm going to go ahead and turn the call over to Fritz now, for some opening comments..

Good morning and thank you for joining us to discuss Saia's first quarter results. I'm pleased to report that we opened 2021 with record results across the board despite significant winter weather storms experienced in many terminal locations mid-quarter.

First quarter revenue was a record $484 million, surpassing last year's revenue by 8.4%, a record for any quarter in Saia's history. Operating income grew by 26% to a first quarter record of $48.7 million, and our record 89.9% operating ratios in the quarter marked the third consecutive quarter where our OR was sub-90%.

As I mentioned, winter weather activity in mid-February impacted our operations significantly with as many as 70 terminals closed or operating on a limited basis for several days. As the storms passed and our network got back to pre-storm productivity levels, we saw healthy daily shipment trends at the end of February, which carried through March.

For the full quarter, shipments per workday increased 2.6%, and a tonnage per workday increased 5.3%. Volume trends, absent the weather, continue to reflect the continuation of the strong level of business activity that we felt in the second half of 2020 as the economy began the initial reopening phase following the COVID-19-related shutdowns.

Our ability to work through the network disruptions in the quarter and deliver our customers' freight with a 98.7% on-time service is a testament to the talent and efforts of the entire team. I'm pleased that our quality remained a priority and our cargo claims ratio improved year-over-year to 0.65%.

With strong service levels, our value proposition continues to present us with an opportunity to improve pricing. On January 18, we implemented a general rate increase of 5.9%, and contracts renewed in the quarter did so with an average rate increase of 9%.

Our pricing initiatives are not limited to base rate increases as we intensify our focus on accessorial charges, ensuring that we recoup our substantial investments in service. As we build our business, we continue to optimize our mix of business with an emphasis on customers that support our value proposition.

The combination of these efforts are driving the positive pricing performance that we're achieving in overall yield, excluding fuel surcharge, improved by 5.7%.

Revenue per shipment excluding fuel surcharge increased 8.5%, benefiting not only from pricing gains but also from the 6.6% increase in length of haul and the 2.6% increase in weight per shipment.

Ultimately, this improvement in our revenue per shipment plays a key role in improving our margins and drove our record first quarter financial performance. I'm going to turn the call over to Doug for a review of our first quarter financial results..

Thanks, Fritz. First quarter revenue was $484.1 million, up $37.7 million or 8.4% from last year, with 1 less workday in the period. Revenue growth resulted from a combination of our 5.3% increase in daily tonnage as well as a 5.7% increase in our yield, excluding fuel surcharge, which Fritz mentioned.

Fuel surcharge was also a tailwind to total revenue growth and increased by 8.7%. Fuel surcharge revenue was 12.9% of total revenue compared to 12.8% a year ago. Moving now to key expense items in the quarter. Salaries, wages and benefits increased by 2.4% with our January 1 wage increase of approximately 3.5% being the primary change variable.

Purchase transportation costs increased 50% compared to last year and were 9.3% of total revenue compared to 6.7% in the first quarter last year. Truck and rail PT miles combined were 15.5% of our total line-haul miles in the quarter compared to 9.4% in the first quarter of 2020.

Fuel expense increased by 3.9% in the quarter, despite company miles being 3% lower year-over-year, the increase was the result of national average diesel prices that rose steadily throughout the quarter. Claims and insurance expense increased by 10.2% in the quarter largely due to higher premium costs versus the prior year.

Accident-related expenses were actually down year-over-year. Depreciation expense of $35.4 million in the quarter was 8.5% higher year-over-year.

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

Total operating expenses increased by 6.8% in the quarter, and with the year-over-year revenue increased by 8.4%, our operating ratio improved to 140 basis points to 89.9%. Our tax rate for the first quarter was 22.3% compared to 23.7% last year, and our diluted earnings per share were $1.40 compared to $1.06 a year ago.

We anticipate an effective quarterly tax rate of approximately 24% for the remainder of the year. During the first quarter, we made capital investments totaling $25.6 million.

Capital expenditures on equipment in the first quarter were below our forecast as some of our suppliers are seeing delays in component shipments, and production has been behind schedule. We expect capital expenditures will step up over the next couple of months as we take delivery of increasing numbers of tractors and trailers.

And we still expect full year 2021 capital expenditures will be approximately $275 million. Our balance sheet remains strong with $53.3 million cash on hand and more than $300 million of availability through our revolving credit facility and additional outside borrowing sources. I will now turn the call back over to Fritz for some closing comments..

2021 is off to a good start, and we're focused on service, productivity and pricing this year, as we seek to continue our trend of improved operating results. Our value proposition continues to expand for our customers as we provide great service across a growing coverage footprint.

In the first quarter, we opened the terminal in Wilmington, Delaware and expect to open 3 to 6 more during the year. Our usage of purchase transportation increased in the quarter as we sought to maintain very high levels of service through the quarter.

As part of returning our network to more normal operations during February and March, we utilized purchase transportation to quickly resource service after the weather impacts. Further, as we continue to grow the business across the map, we supplement our line-haul as we build density.

We focused these purchase transportation investments to balance internal and external capacity to maximize service and minimize costs. Throughout, we seek pricing that allows us to invest in these high service levels and achieve our margin objectives.

I'm also excited to report we recently took delivery of Volvo's VNR electric tractors, that we'll be utilizing them in P&D activity in Southern California in a pilot project. These new electric units are not only an investment in our fleet, but we view them as a long-term investment in the environment and sustainability.

We've long been committed to reducing the impact the effect of our operations have on the environment by modernizing our fleet to improve fuel efficiency and reduce carbon emissions. These battery electric units are next step in the pursuit of this long-term goal. Later in the year, we'll begin a pilot project using CNG powered tractors.

And we'll continue to evaluate other alternative fuel options as they are available. With that said, we're now ready to open the line for questions, operator..

Thank you. [Operator Instructions] Our first question is coming from Todd Fowler with KeyBanc Capital Markets. Please go ahead..

Great. Thanks and good morning.

Fritz, with your comments around the contract renewals coming in at 9% during the quarter, obviously, a very strong result, is your sense that that's really where the market is at? I know for a while, there had been an opportunity for you maybe to move pricing up a little bit more as your service levels had improved as you built out the network.

So can you comment on your pricing relative to the market, also maybe some expectations for contract renewals and yields as we move through the year?.

Yeah, thanks, Todd. Yeah, listen, in this environment where we are right now, we think it's a favorable backdrop for pricing. I mean, quite frankly, the cost to operate the business this year, either from recruiting drivers, maintaining drivers, investments in technology, all support the need for additional pricing.

Our focus is really about not only getting the base rates right, but then also making sure that we charge for all the extras, the accessorials if you will. So we're pleased with the 9% contract renewal, and that reflects the book of business that was negotiated in the quarter.

I think that the environment is such, I think the entire space is pushing pricing. I'd like to - we continue to need to push that, when we benchmark our sort of pricing versus the competition versus the market and benchmark our service levels versus the market. We got to keep pushing that. So we're not satisfied at this level.

There remains an opportunity. And frankly, we need to do it because of the underlying cost in the business that we're challenged with. So good quarter around it, but I think there is more room for us into the balance of the year..

Okay. Good. Yeah, that's good context. And then, just secondly, with margins, I think that coming into the year, you talked about the potential for 200 basis points of margin improvement, maybe something little bit better than that, depending on where the environment was.

Can you comment a little bit more now that we've got a quarter underneath our belt.

It feels like that the environment is pretty strong, kind of on what your expectations for margin improvement would be? And then, are you at the point where you can add terminals and kind of grow without having a drag from the margin perspective as you open new service centers?.

Yeah, so, Todd, I think that if we look at the range opportunity for us this year, I mean, certainly [throwing] [ph] is sub-90 up in the first quarter, pushes us to the upper end of that opportunity range.

And then if we look at just what we're thinking about around Q2 - or sorry, Q1 to Q2 sort of sequentials there - obviously, weather impacts in the first quarter. But if we look into Q2, there is probably 250 to 300 basis point sort of improvement quarter-to-quarter there.

It's we have line of sight to and feel pretty - we'll operate in that environment. And I think as the environment develops over the year, we'll continue to push the margin and pricing. Now, at the same time, we're also confronted with, and it's built in our sort of expectations. Wage inflation is going to continue to be real there.

Recruiting costs continue to be real. We're having to - it's competitive market out there for drivers. And that's important, we're focused on that, on recruiting. That's underlying cost. That means we got to keep pushing the pricing meter as well.

And I think that longer term into the year, we feel better and better about our performance, but there's a lot of execution that still got to happen. Our operations team is doing a great job. That will continue. But it's a challenged market in terms of finding the right labor in the right spot.

So we feel pretty good about Q2 kind of where it's going, but it's - full year should be good..

Yeah, okay, understood. Yeah, starting below 90 with weather in 1Q is a good start to the year. So, I'll turn it over and jump back in the queue. Thanks so much for the time..

Thank you. Our next question is coming from Amit Mehrotra with Deutsche Bank. Please go ahead..

Hey, thanks. Hi, Fritz. Hi, Doug. So, just a quick follow-up on the 9% contractual renewals, obviously, nice acceleration from the 6%, 7% last couple of quarters. I guess, some of that may be coming at the cost of volume and shipment growth, and obviously, you do have a fixed cost base, where volume growth is helpful in terms of absorbing that.

So just wanted to ask you maybe a philosophical question about striking the right balance between price and volume and - or is there's just so much runway in terms of where your revenue per bill is right now and it should be, that you still kind of expect continue moving up on the pricing spectrum? If you could just talk about that..

Yes. Amit, listen, we're focused on driving returns, right? And this is a business that underlying has got inflationary cost. We look at where our pricing is vis-à-vis the market where our margin structures are. We see the opportunity there. So we're focused on growing those - on our operating income, we're focused on growing that.

We're not looking to shed necessarily volume. What we're looking to do is finding better priced freight or better opportunity to leverage all the things that we do well and finding those customers that support that. And I think that that ultimately is where we drive value in this business, more so than necessarily chasing volume for volume's sake.

It's about optimally pricing and operating, and providing that service. So our trade is always going to be around - towards margin, because we think that's the biggest value driver for us. That's better pricing, finding freight that fits the network better that we can more optimally handle and generate a return..

Yeah. And then, just as a follow-up, Doug, it would just be helpful to look at what March tonnage did and April tonnage. And I don't know if you want to talk, year-over-year is kind of weird, but you can also talk about sequentially as well. And, Fritz, you talked about OR progression, feeling good about 2Q.

I wonder if you could be a little bit more specific around that, in terms of what you think the sequential change should be. And I kind of - all related to that, I don't know, it's a weird quarter, so I don't want to look at the 89.9%, it's kind of indicative of where you exited the quarter.

So I don't know if you can provide a little bit more color in terms of, March was obviously a better operating environment in both cost and revenue perspective.

What was the OR kind of in March relative to kind of that 89.9% for the full quarter?.

Sure, hi, Amit. Yeah, I'll run through the shipment and tonnage numbers. I know that we put the January, February numbers out, but I'll just recap them quickly. Shipments per workday in January were positive, up 1.4%. In February, shipments per workday fell 6.7%.

And like Fritz said, we had a week where 70-ish terminals were either closed or very limited. So that impacted February shipments. And some of that ended up probably shifting into March and then March is seasonally stronger month. So March shipments per workday were up 12.1%. And on the tonnage side, January was up 5.4% per workday.

February was down 2.3% per workday. And tonnage was up 11.5% per workday in March. So you can see weight per shipment has been pretty positive, up 2.6% for the quarter, and that's helping on the revenue per bill side as well. In terms of the margins, Fritz mentioned, we feel like 250 to 300 basis points is the opportunity in the quarter.

And historically, the way we view that is it's been, over the last 3 to 5 years, it's been 230 to 250 basis points better in Q2 than Q1, when we adjust out for major accidents to try to smooth it. We feel like with the impact of weather in the month of February, we probably left a little bit on the table.

So that's why Fritz says 250 to 300 is probably the right way to think about what we should be able to do. You're right things were very strong in March and that was a record OR for us in March. So....

Well, what was that OR in March, was that OR in March..

Come on, Amit, we don't give out the monthly OR. But it's pretty good. Just get your neighbors now, it doesn't mean I'm going to tell you..

I think if you look at what we're thinking about for change from Q1 to Q2, I think that's probably indicative, right? So that we're pretty confident, we feel pretty good about the second quarter..

All right, very good. Thank you guys for entertaining my questions, I appreciate it. Thanks..

Thanks, Amit..

Thank you. Next, we will go to Jon Chappell with Evercore. Please go ahead..

Thank you. Good morning. Fritz, you mentioned some of the hiring inflation and probably some of the challenges as well.

As we think about comp and also purchase transportation to meet the service levels that you guys want, should we think about those maybe holistically? So if you can't really add the people that you want kind of at the front end, you supplement that with purchase transportation.

And once you finally scale the internal employee count, maybe the purchase transportation comes down.

So rather than looking at comp was down pretty meaningfully year-over-year as a percentage of revenue, but PT was up, we look at that trend kind of as one?.

Yeah. Quite honestly, that's how we think about it internally. I mean it's you're going to provide line-haul coverage to support our service offering, and you're either going to use your own internal assets. And in the instances where it's more optimal or you need the capacity, you would go outside. So, yeah, we can think about it in those contexts..

Okay, great. And then, also on terminal expansion, so you mentioned the Northeast Atlanta terminal back in January - or February, I guess, you said another 4 to 6 in 2021. There is a lot of commentary out in the market about difficult real estate markets. People don't really want to sell warehouses right now.

As you think about your organic expansion plans for this year, are you finding challenges in the market as far as land or existing terminals exist? And you also mentioned in February, Chicago could be a potential for capacity, maybe in Houston.

Any other regional commentary you can make on organic expansion plans?.

Sure. Listen, I think there are certain markets where the real estate opportunities are pretty challenged. North Atlanta, for us, frankly, took us a long time to get that into the pipeline, but we have line of sight to get that open in the fourth quarter. So we're excited about that.

But that was probably indicative of what it's like to deal with in a growing metro market to find the location that's appropriate, one that you can develop that somebody can get the - we can get the right zoning. In that market, we're competing with industrial real estate investors for that property.

So you see that in other markets around the country. But that's we also see we've got a pipeline of opportunities that kind of - we should be able to get closed this year, which we're excited about. Places like Chicago, certainly those are in our sort of sights around opportunities.

We're not really in a position to announce anything around those specifics, but those are markets that we're looking at. LA Basin, certainly those are opportunities there. That's a really challenging market, probably end up leasing assets there, because you just can't - it's difficult to find willing sellers, if you will.

But I think if you look across our geography, all the markets present some sort of an opportunity for us, right? So if you just take our footprint and lay it against some of the best-in-class carriers, we're at 170 terminals now, which is great. The others are sort of north of 200.

And many of those - yeah, there are some markets that we don't have coverage in yet, that we will. But there's also greater density that we could build in places like Chicago, Houston, Dallas that are there for us. And that's part of our real estate pipeline..

All right. That sounds great. Thank you for thoughts, Fritz..

Next, we will go to Jack Atkins with Stephens. Please go ahead..

Great. Good morning and thanks for taking my questions, guys. So I guess just going back to the pricing environment for a moment and the 9% increase that you realized in the first quarter on contractual renewals.

Can you talk about - does that include the work you're doing on the accessorial side as well? And can you maybe walk us through some examples of some of the changes around your accessorial policies? Just given the tight capacity environment out there, I would think that you could do quite a bit on that front..

Yeah, so if you look at the legacy of some of these, there would be instances where historically, maybe we waived liftgate charge or limited access, or frankly, making deliveries into high cost areas. Those are areas that maybe we waived or didn't have an accessorial for that.

So as we have refined our costing and understanding the characteristics of the customers' freight, we have taken those waivers out. And significantly, we note in here that GRI was 5.9% for our tariff customers back in January. Biggest part of that actually was lifting waivers around that were in place with that set of accounts.

That's not part of the 5.9% in addition to. So the opportunity there, and we pushed that pretty hard, that's been accepted in most cases. there are some refinements that have come up after the fact.

But I think that is indicative of, we know what the costs are and now getting paid for that service, right? So across the board on all of our contractual renewals, all of - any of the 3PL work we do, all of that, we've got to make sure that we're getting paid for those additional service offerings.

The 9% has got some of that in there, but frankly, there's always more, right? So it's - as we understand the customers, freight characteristics is an opportunity for us to continue to push those sort of pricing initiatives. The environment is there for that.

The assets are - special assets are required, and we need to get paid for it, be it residential, liftgate, limited access, all those sorts of things are pretty critical..

Okay..

And, Jack, also, I think you should just remember to frame it up the right way. I mean those contractual renewals to us are really they should give you an indication of where the shippers' mindset is at. You know the structure of our contracts. It's not like you can go bake 9% into your earnings model. That's the negotiated rate.

And then you sit back and see what freight actually comes to you, see if it comes to you [indiscernible], you thought it was going to come to you. And - the acceleration is definitely in part due to what we're seeing with capacity. And the tightness is out there right now..

Okay. That makes a lot of sense, Doug. And I guess just from a follow-up, if I could go back to the question around trends in April, could you comment on what you're seeing from a tonnage and shipment perspective in April? And I think kind of looking at it both year-over-year and maybe sequentially versus March will be helpful, if that's possible..

Yes. So far, it's been a strong trend. I mean through this part of April, shipments are up about 28% year-over-year, and tonnage is up 30%-ish year-over-year so far in April. So sequentially, there's usually a step-up, March to April, and then a low-single-digit step up again in May.

And then, through the summer, it kind of flattens out on a shipment per day basis. But seasonally, it's kind of stepping up like historically you would expect..

Okay. That's great. Thank you again for the time..

Sure..

We will now go to Jordan Alliger with Goldman Sachs. Please go ahead..

Yeah, hi, morning.

I just want, I'm curious, given all the growth and capacity that's out there for LTL and the tightness in the industry, how much capacity, do you have a sense for how much capacity you have throughout your network to accommodate growth? How much excess you may have? Or are you running up against limit?.

Yeah. I mean on the capacity side, you have to look at it really in 3 buckets. On the terminal side and door side, we think there's 10% to 15% kind of latent capacity out there. You'll have pinch points in some markets where you couldn't handle an influx of 15% volume.

But in general, we've grown the door count pretty consistently over the last few years. It's probably up 5% year-over-year on the door side. Fritz, we talked a little bit about the lag here and taking deliveries of equipment so far year-to-date. So that's the other bucket of capacity.

Probably, we got the power we need, but the final component of capacity is the driver side for us, and that's been a tight, as you've read in every release that's out there. And we're offering hiring bonuses in a lot of markets and referral bonuses across the network, trying to bring in qualified drivers.

But that's the piece now that is kind of the drag on adding capacity. So we're working through that. And you saw it reflected in our PT numbers, but still we're not going to use the PT unless we have price to move the freight and provide good service..

Great. Thank you..

Thank you. Next, we will go to Tyler Brown with Raymond James. Please go ahead..

Hey, good morning, guys..

Hey, Tyler..

Hey, Fritz. So this is a conceptual question. I want to kind of come back to this talk about capacity. But I think this quarter, you crested 900 miles on your length of haul. I think it was the first time you've ever done that. You're obviously becoming an increasingly competitive national player.

But I'm curious about what pressures the longer haul is having on the network. So are you running into any door pressures on that East-West break? I know you upgraded in Memphis, but what about markets like Kansas City or Indie, Columbus, maybe those are examples.

But are you needing to put more capacity into some of those key breaks? Is that holding you back in any way?.

The - where I'd say the impact of this was in February. So 1 of the weather impacts, Tyler, was around Memphis, was weathered out for probably close to 2 weeks. So that was an impact. And as you would expect, that's an important East-West sort of corridor for us, so that we ended up using PT around that.

So that's part of what happens with PT that longer length of haul that also leads us that's a capacity component, right? And so we use more PT to support that as well, either be a rail or truck. So right now, the Memphis assets, Kansas City, Indie, we've invested in Indie and Memphis, both of those are new facilities.

They're not - they've got ample capacity. Kansas City has got capacity. There are probably opportunities to invest in that market over time. But that hasn't necessarily - the facilities haven't been a pinch point, but you see our PT utilization reflects what you're seeing around length of haul..

Okay. Yeah, that's helpful. And then I know Paul Peck recently retired, obviously, a very illustrious career with Saia. You elevated Patrick to COO. So I know he's been pretty central to a lot of what's been going on in the Northeast expansion, technology, et cetera.

But just any thoughts about operationally, should we see any change in thought or philosophy with Patrick at the home?.

No. I think what you would focus on, and this is - and we talk a lot about this. We over the last several years has been very much of a focus around data analytics, optimization, decision support around making the right pricing decision, operating decision, scheduling, rolling out new technology.

Although, Peck was providing the leadership, Sugar was in the center of all those sort of activities. So that - as he has emerged in the new role, I think you do see more of the same. It's the culture that Paul was critical to the development of the culture and the leadership in our team.

Patrick contributes to the leadership and culture and adds the data analytics. And I think the combination of those 2 things were a role win for us over time. And this was kind of normal transition for us for Paul to retire and move back to Louisiana and Patrick to be in a position to assume those duties.

So I'm excited about the whole organization around this. It's sort of a - it's been a planned transition, and we've been able to pull it off..

Okay. That's helpful. And then Doug, just a quick housekeeping item.

Whether you extending the extra PTO into this year? Or should that normalize for the rest of the year? And is that about a $10 million expense that kind of comes out this year assuming you go back to a normal PTO structure?.

No, it doesn't continue into this year. The extra PTO that was granted was last year to kind of weather the initial COVID impact. So that doesn't roll forward into the year..

Okay. Okay.

So that's a help this year?.

Well, yeah. But I mean, the wage increase that was delayed from July and pushed into January would be hurt in that aspect..

Okay. So a couple of things going on. Okay. All right. Thanks, guys..

Thank you. Next, we will go to Scott Group with Wolfe Research. Please go ahead..

Hey, thanks. Good morning, guys..

Good morning..

So Fritz, I wanted to ask a couple of longer-term questions. So you talk about potential to go from 170 to over 200 terminals. And now that you're clearly sub-90% on OR, I'm sure the next sort of goal is 85% on the OR.

What's a realistic timeline for hitting those 2 milestones?.

To hitting the 85%..

In 85% and then getting to 200-plus terminals..

I got you. So listen, I think the way I would point to is kind of what we've done over time, right? So I think that in a normal sort of cadence, normal environment, we ought to be able to do 150 to 200 basis points of improvement year-over-year, right? If things are in a better environment, we probably beat that.

In a tighter environment, maybe it's more challenged. I think the facilities that we add over time, we tend to be focused on doing this on an organic basis. So if the opportunity presents itself, we'd probably accelerate that process like we did 2 years ago in the Northeast when the New England terminals became available.

And I think we can - as we look to optimize them, that maybe we slow down some of the cadence.

So if you go to - the key thing going from 170 to 200 terminals, yeah, there's going to be Chicago's, there's going to be additional Atlanta, additional Houston's in there, but then there are also going to be ones that maybe West Virginia that are smaller, that sort of thing. So they're not all the same.

But one of the big things that, I think, value driver for us over time, and we're seeing it a little bit now as we've we build around the 170, so we start building density across all the network and you see that leverage.

So I think that it's a - we'll spread that out over a few years, but I think that as we continue to execute in a favorable environment, we move to the upper end of that range. But I think the thing that's really exciting that's happened over the last couple of years.

And I think you just saw it in Q3 last year, Q4 and Q1 even is the execution has allowed us to kind of raise the floor, if you will. The downside risk, I think, is much less than it historically has been as we've built scale and improved our own operational execution. So I think the opportunity is there, I don't see an impediment for us..

Okay. And then just on the truck technology side. So you mentioned electric.

Realistically, what percentage of the fleet could this be 4 or 5 years from now, and then any thoughts on any autonomous options as well?.

Yeah.

So on the fleet piece, there could be an opportunity sooner than later around the P&D part of the business, right? So if you look at the electrics that we launched in SoCal, the interesting thing there is that could be a really useful sort of match just provide service to our customers in the LA Basin or in those areas where maybe the asset utilization is not sort of 24/7.

So you could run it in the city during the day than the 4- or 5-hour charging time, maybe you could do that at night, not really have an impact on the operation. Typically, our newest equipment we'd like to put in dual use, but in that environment, perhaps you take a different tact.

It almost takes - assumes the role of a Class 6 tractor in our fleet, 1 with better torque, actually. So that would be a bonus or plus. So I think over time, I think that's probably where it first makes an impact is going to be in the city operation. And I would say that it's probably 3, 5 years down the road.

The key thing and the thing we're excited about with this pilot is that we can get our hands on it, see what the operational characteristics are and then really understand the cost of operating these things. I mean there's a lot of information that's floating around out there around what they could do.

And for us, we're kind of like let's put our hands on it and let's understand it before we draw conclusions. So I think it's probably down the road still. Around autonomous, I think that there's a lot of talk about that. I think maybe there's an opportunity in the sort of the line-haul network that's sooner, kind of 5, 7 years, I don't know.

But listen, we haven't seen anything in operation yet. So it's tough for us to conclude what the timing would look like. Certainly, that would probably be the most likely application. I wouldn't see that necessarily early on in the city operation, just nature of traffic and death and all those sorts of things.

So a lot to be learned here, Scott, around where this technology goes..

Appreciate the thoughts. Thanks, guys..

Thank you. Next, we'll go to Stephanie Benjamin with Truist. Please go ahead..

Hi, good morning..

Good morning..

I want to talk about your business mix kind of during the quarter and maybe the breakout between consumer and industrial, if you saw that change at all or compared to historical averages in 1Q? And really what your expectations are throughout the year and just in terms of business mix between the 2? And any kind of color you can provide on those would be helpful..

Yeah, I don't think we saw anything in terms of mix with our customer base. It looks to hold a lot different than most first quarters. I mean the manufacturing base starts to come to life a little bit after the late December and early January shutdowns.

And we've got some big retail customers that kick-in and do some seasonal shipping with us as they roll out spring merchandise. And I think it was a pretty balanced mix. I mean, I always think our business is 60% to 65% industrial. When you walk our docks, that's what you see on the docks.

So there have been different segments that have at different rates of come back in terms of housing or auto. But in general, I think the mix is about the same..

Got it. And then just a follow-up to the - some of the terminal questions that were asked earlier.

Is there a general idea of when we can expect some of those incremental 4 to 6 terminals throughout the year just as we kind of look to plan from a modeling standpoint, just that the incremental investments that come from starting some of those terminals?.

Yeah, they're going to be second half, so Q3, Q4. And quite honestly, there'll be expenses. I don't know that they'll necessarily be visible. If we keep focusing on our core execution, we'll be able to reinvest those without necessarily having a material or notable impact on the overall operation.

The good news is it that 170 terminals when you're adding 3 or 4, we can absorb those pretty easily..

Absolutely. Well, that's all I have. Thanks so much..

Thanks, Stephanie..

Next, we will go to Ari Rosa with Bank of America. Please go ahead..

Great. Good morning. So first question, just wanted to see if you could maybe contextualize the 9% contractual rate increases and the 5.9% GRI. How does that compare to what you're seeing in terms of cost inflation? Obviously, we've talked a lot about kind of wages, but you put the 3.5% wage increase in place in January.

Maybe you could talk about some of the other line items and maybe where you're seeing some pressure?.

Sure. I mean in the quarter, I mean, our OpEx per shipment was up about 5.8%, I think, almost 6%, but we lost some shipments in the middle of February. They don't lose the fixed cost. So that number is a little bit inflated. You would expect it to trend up a little bit. The longer length of haul, it costs a little more to go the extra distance.

But in general, I think 3% to 4% is a rate of inflation, if you want to call it in that metric that you should think about. And you grow your margins if you grow your revenue per bill faster than that. But the cost buckets, I mean, they're all the same ones we talk about. Fritz mentioned salaries and wages, the inflation there in healthcare.

I don't think we've ever model since I've been here for anything less than 10% inflation around health and pharma costs. Fuel, obviously, this year, had put a little pressure on that operating expense per shipment number, too, so combination of things. But I think if we had normalized shipments in Q1, it's in that 3.5% to 4% range..

Got it. I would - sorry, go ahead..

Pricing side, I would just add 1 element to this is that as we think about pricing, we're thinking about focusing our pricing efforts on getting what's available or what the market is, right? So there are - it's not necessarily pricing to get to an 85% OR.

It's pricing to get what's available in the market, right? So if that means that, that turns into sub-85, we're okay with that, if that's what the market is. I mean, frankly, if our pricing, revenue per bill versus the other national carriers is less, we need to push to that level, right, and to their level. So that's not a cost-plus play.

That's a - if the market charges for these accessorials and site is going to charge for these assessorials, too. So that's kind of how we think about it internally..

Got it. Very helpful. And then just my second question. I think you guys leased slightly over half of your service centers. I just wanted to ask from kind of a strategy standpoint.

Does that put you in a little bit of kind of a structural impediment in terms of that capacity to expand? And how much of an impediment, I guess, is that to getting to that sub-85% operating ratio?.

Listen, I don't - we don't think the least versus buy thing is an impediment to us getting below that sort of 85% to get the best-in-class OR. I think the impediment is making sure that you price for everything, all the service you provide.

Yeah, certainly, if we buy or build a terminal in Memphis and Indianapolis like we have in the last couple of years, those 2 big facilities, those are in present dollars.

And certainly, our competition has maybe had facilities there for years, and that's going to be built in cost difference between our depreciation expense related to those facilities and theirs. That's just a fact of life, but that's not the biggest difference between our OR and their OR. The biggest factor really is about pricing.

So, it's - the key thing for us is as we've looked at markets as an example of LA Basin, love to have purchased a facility there last year or year before last, but ended up having leased one in Long Beach, California. That - the choice there is you're either in the market or you're not, it'd be preferable to own it, but we couldn't.

There was not a willing seller. So leasing was fine. It's a long-term lease, and we can operate on that basis. That goes with other markets, too. Strategically, we prefer to own strategic assets. But if we can get a long-term lease that keeps us in the market, that long-term, that's a value contributor as well..

But does that necessity to lease, does it become any kind of headwind to expansion? Does it limit your ability to expand?.

The limit to expansion would be if we can't find facilities, right? That's the limiter. And we haven't - that hasn't - we haven't encountered that yet, right? So I think, there's still opportunities out there, LA Basin is - I'll go back to that example.

That one, most people in that market, the real estate investor there says, this is a long-term hold. They don't want to sell. So for us, we're going to have to pay market rents there, right, or market lease. That just means you're going to have to get charged for it. That's a cost of business in LA Basin.

So it comes - in that scenario, you're going to be there, you've got to price to be in that market to generate a return. So I think that - we think that that is a - there's an opportunity for us to continue to grow on that basis. And certainly, it hasn't limited our ability to expand..

Got it. That's really helpful color. Thanks for the time..

Thank you. Next, we will go to Tom Wadewitz with UBS. Please go ahead..

Yeah. Good morning. Wanted to see if you, I mean, I know you have a lot of different customer types and large customer group.

But what are you seeing in terms of kind of who's realizing the greatest ramp in activity, if you look at some of the different customer groups? How would - kind of how would you look at that where you would expect greatest increase in activity in the most optimism?.

Tom, that one is a tough one, because it's really kind of across the board right now. I think in terms of where we see business growth, I mean, there's not really a great call out one or the other. Historically, if you followed Saia, we might have talked more about energy in the past, because of our geographies largely in energy.

We grew up in the energy patch. So that historically has been in an area that's really kind of been a tied to our growth. But as we've grown, that's become less of an influence.

And I would say, generally, the energy space is not growing at the same rate as all the other sort of categories we participate in or other sort of sectors or industries that we see. And you look at the geography, I mean, it kind of lines up with that.

Houston is not - from a growth-wise, isn't anywhere near what you see from the other sort of geographies from us. But frankly, Houston region is still some of the best OR in the company. So that hasn't necessarily been a drag us, but it's pretty across the board, to be honest with you..

Right. Okay. Yeah, that makes sense. What about - you gave us pretty good time, pretty helpful commentary on sequential OR. And I think you talked about kind of a normal year for OR improvement as well.

How do you think about this year? If you said, well, what kind of magnitude could you see in terms of OR improvement in full year 2021 versus 2020? Is it 300 basis points, obviously, some elements of EV comparing second quarter in particular? But how would you think about the full-year from an OR improvement potential perspective?.

Listen, from what I - we have visibility to, we feel pretty good about second quarter. I think if that continues in the second half of the year, we'll continue to see some real strong improvements year-over-year. But Q3 and Q4 of 2020 were record quarters for us.

So it will be interesting to see how that continues in the second half, but I think it is a - certainly, it is setting up for us, and I've really focused around our pricing initiatives and our internal sort of execution.

And I feel pretty good we'd be at the upper end of any range based on what we see in the marketplace right now and certainly what we see into Q2..

Great. Thank you for the time..

Thank you. Our final question will come from Ravi Shanker with Morgan Stanley. Please go ahead..

Thanks. Good morning, gents. So there's been a lot of commentary, very helpful, on where the market is and the pricing strategy and such. But if I were to follow-up from a slightly different angle, kind of you heard a couple of your peers talk about gaining share in the market, and I'm sure you guys feel pretty well positioned to do that as well.

It's not often that we hear about players talking about gaining share in a market that's so tight when people are kind of struggling to keep up in the first place. So how do you see the competitive environment out there? Purely, if you guys are getting price, it doesn't seem like people are beating each other up.

But where are those share gain opportunity is coming from, do you think? Is that coming from smaller players in the industry? Or are you expanding the LTL pie? Are you getting it from rail? What do you think there?.

I mean, I think there are some national players that are looking at the returns and looking at the margins in their business, and saying, this isn't acceptable. And so, I don't think it's just the smaller players that might see some share.

There are bigger players and some of them well-managed companies that are just looking at things now and saying, if I have to give increases to hire drivers and all my calls are going up, there's no reason to add volume with those factors.

You might as well raise prices and do a good job with the freight you do bring in, and that fuels a continuation of the ability to raise price. So I think there is share opportunity out there. But for us, like I said, I mean, on the capacity side, it's been tight for drivers.

So we're going to price to improve the mix of business that we're handling, whether that's weight or length of haul or the characteristics of the freight, whatever it may be, we're going to price to track the business we want to haul and that we can make money on..

And just to clarify, if those entities are giving up that business because the returns are unacceptable to them, that doesn't necessarily mean that the return will be unacceptable to you, because it's a better fit in your network?.

Possibly or it goes to somebody else, and that just tightens things, right? I mean if it's not a good service provider, when - and when they say no to a lower service provider's rate increase, they're probably not going up the food chain for better service, but that might take some capacity out from the smaller regional players and that freight becomes an opportunity.

So it's a mix. There's not just a page in a playbook we can point to, lot of moving pieces..

Got it. And just lastly to follow-up on the discussion on electric autonomous, so if I'm hearing you right, I mean, you guys feel like electric is better suited for P&D right now, and autonomous is better suited for line-haul.

Again, I'm just wondering if you guys have kind of run any math, if you've approached kind of that level to see what kind of savings you might get from running this? Obviously, right now, that you have subsidies and such for electric, but just normalized, where can your OR go, if you convert your P&D fleet to electric and your line-haul fleet to autonomous?.

Yeah, at this stage, Ravi, kind of the way we're thinking about this, our pilot here is we want to understand what those variables are. So let's consider how we invest presently in our fleet. So if we buy a diesel tractor, it's dual use in its earliest part of its life cycle.

And if you look at the specs around the EV tractor, that's - if it hits the Volvo spec, it's for a 150-mile range and it's a 5-hour recharge. So for us, that means that's a single - that's a day P&D opportunity. And certainly, in the LA Basin, there's probably an application there.

So I think it's around us, understanding what those actual performance characteristics are. And down the road, we'll be able to make that kind of a call.

And then when we look at the autonomous, we are - I mean, that's well in the future, for sure, what are the characteristics of that look like? I mean, do we have to keep an attender or a driver on board, that changes the math versus the fully autonomous meaning no driver, right? So those things are still to be determined.

Part of the reason why we made the investment though is we think that we know the - that's where the world is going. We just want to - we want to participate, make sure we collect our own data to validate these sorts of investments. I think there is probably an opportunity, but it remains to be seen what the economics look like..

Understood, very helpful. Thank you..

Thank you. That concludes today's question-and-answer session. Mr. Holzgrefe, at this time, I will turn the conference back to you for any closing remarks..

Thank you, everyone, for their interest in Saia. We look forward to delivering a strong second quarter here and we look forward to catching up with you at the end of the quarter. Thank you..

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect..