Saia - Q3 2024
October 25, 2024
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Saia Incorporated Q3 twenty twenty-four earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you, and I would now like to turn the conference over to Matthew Batteh, Saia's Executive Vice President and Chief Financial Officer. You may begin.
Matthew Batteh (EVP and CFO)
Thank you, Abby. Good morning, everyone. Welcome to Saia's Q3 twenty twenty-four Conference Call. With me for today's call is Saia's President and Chief Executive Officer,Frederick Holzgrafe. 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 nineteen ninety-five. 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 will now turn the call over to Frederick for some opening comments.
Frederick Holzgrefe (President and CEO)
Good morning, and thank you for joining us to discuss Saia's Q3 results. While the underlying macro trends remain tepid in our view, our year-over-year results in the Q3 continue to reflect the growth experience since last summer. In the quarter, we averaged approximately 37,200 shipments per day, compared to approximately 34,300 per day last year, or an increase of 8.5%. Our Q3 revenue of $842 million increased from last year's Q3 by 8.6% and is a record for any Q3 in our company's history. Yield or revenue per hundredweight, excluding fuel surcharge, increased 1.7%, reflecting a constructive pricing backdrop and the impact of changes in our mix of business.
Revenue per shipment, excluding fuel surcharge, increased 0.9%, despite a headwind from weight per shipment, which was down 0.8% in the quarter, and length of haul, which decreased modestly. Our Q3 operating ratio of 85.1% deteriorated 170 basis points compared to our operating ratio of 83.4% posted in the Q3 last year. While weight per shipment stabilized into the Q3, we continued to see some mix headwinds from the softer industrial backdrop and the growth in retail business since last year's industry disruption. We remain intently focused on mix management and pricing initiatives, as seen in our contractual renewals, which remained strong at 7.9%.
During the quarter, we opened eleven new terminals and relocated one other, continuing to execute our long-term strategy of improving our service and value proposition to the customer. Eleven new terminals in the quarter is a record for any quarter in company history, and I'm proud of the execution from our team. Each new opening represents its own unique challenges, especially those in new geographies. Most of the terminals opened in the quarter were in the Great Plains, a new geography for Saia, and in these locations enable us to extend our addressable market and provide direct service to customers in the, in this area of the country. With these recent terminal openings, we're now able to provide direct service to all the contiguous forty-eight states, which significantly enhances our value proposition to our customers and confirms our position as a leading national LTL carrier.
As with every new opening, these new terminals require investments in people, equipment, and technology, while entering a completely new geography requires additional investments in the customer experience. We are encouraged by early customer acceptance, and we're excited to expand our addressable market to better serve both new and existing customers. We are very pleased with the progress of our new terminal openings, especially those that opened in the Q2. During the Q3, these terminals continued to grow and become more efficient while still having been open for less than six months. This group of terminals improved their operating ratio by more than 10 points sequentially, further supporting the long-term strategy of increasing our addressable market and investing in the customer experience. While these terminals are not at a company market share or operating margin, they are profitable.
Each terminal is a long-term investment that enables us to provide a solution to a customer in each market. The terminals opened in the Great Plains in the Q3 allow us to directly service a new geography, and we're proud to bring the Saia name to new and existing customers in these communities. We remain committed to our training requirements for our team members in both new and existing markets, which is critical to building a Saia culture and enhancing the customer experience. Our teams are committed to accomplishing our growth strategy with an eye on always putting the customer first. Our customer-first initiatives have been the cornerstone of our success over our hundred-year journey, and we've seen our customer focus on display throughout each new terminal opening in the quarter. I'll now turn the call over to Matt for more details from our Q3 results.
Matthew Batteh (EVP and CFO)
Thanks, Frederick. As mentioned, Q3 revenue increased by $67 million to $842.1 million. Yield, excluding fuel surcharge, improved by 1.7%, and yield decreased by 0.9%, including fuel surcharge. Fuel surcharge revenue per workday decreased by 6.3% and was 14.8% of total revenue, compared to 16.9% a year ago. Revenue per shipment, excluding fuel surcharge, increased 0.9% to $293.39, compared to $290.79 in the Q3 of 2023, and increased 0.9% sequentially from the Q2 of 2024. Tonnage per workday increased 7.7%, attributable to an 8.5% shipment per workday increase, partially offset by a 0.8% decrease in our average weight per shipment.
Length of haul decreased modestly. Shifting to the expense side for a few key items to note in the quarter. Salaries, wages, and benefits increased 15.5%, which is primarily driven by a combination of our employee headcount growth of approximately 13% year over year, and the results of our July 2024 wage increase, which averaged approximately 4.1%. The growth in headcount is related to the increase in volume compared to prior year, as well as the opening of 18 new facilities opened in the past twelve months. In addition, other employee-related costs increased, including additional training for onboarded team members and unfavorable development of workers' compensation claims.
Purchased transportation expense, including both non-asset truckload volume and LTL purchase transportation miles, decreased by 14.5% compared to the Q3 last year, and was 7.8% of total revenue, compared to 9.9% in the Q3 of 2023. Truck and rail PT miles combined were 14.2% of our total line haul miles in the quarter. Fuel expense decreased by 1.3% in the quarter, while company line haul miles increased 12.1%. The decrease in fuel expense was primarily the result of national average diesel prices decreasing by over 13% on a year-over-year basis. Claims and insurance expense increased by 6.9% year over year, and was up 2%, or $0.4 million, sequentially from the Q2 of 2024.
The increase compared to the Q3 of 2023 was primarily due to increased claims activity and development of open cases. Depreciation expense of $54.7 million in the quarter was 19.8% higher year over year, primarily due to ongoing investments in revenue equipment, real estate, and technology. Compared to the Q3 of 2023, cost per shipment increased 0.6%, despite the headwinds from the wage increase and the costs associated with new terminal openings.
We are pleased with the continued cost management and execution from our team in a challenging environment. Total operating expenses increased by 10.9% in the quarter, and with a year-over-year revenue increase of 8.6%, our operating ratio deteriorated to 85.1%, compared to 83.4% a year ago. Our tax rate for the quarter was 24.4%, compared to 24.6% in the Q3 last year, and our diluted earnings per share were $3.46, compared to $3.67 in the Q3 a year ago. I will now turn the call back over toFrederick for some closing comments.
Frederick Holzgrefe (President and CEO)
Thanks, Matt. As we continue to celebrate our hundredth year in business, I'm pleased with our ability to demonstrate our customer-first approach to both new and existing customers in our recently opened terminals and across our network. Every new terminal opening is an opportunity to better position ourselves to provide additional value to our customers. While opening eleven new terminals in a quarter is a large undertaking, these investments are critical to creating long-term value for both our customers and shareholders. Having a comparable footprint to our peers is critical to our value proposition, and full national coverage allows us to offer solutions in every market. While the macroeconomic backdrop remains uncertain, we believe our operating trends support the continued execution of our long-term growth strategy.
Earlier this week, we opened, we welcomed our team members in Akron, Ohio, and we plan to open three additional terminals the remainder of the year. These openings will result in 21 new openings for the year, by far a record in our company's history. As we continue to invest in our network and expand our footprint to better serve our customers, we still anticipate capital expenditures for 2024 to be approximately $1 billion. We remain focused on measuring our performance for customers and onboarding team members that will reinforce our 100-year culture as we continue to execute our growth strategy. For the last year, we've been intently focused on building our national platform. With the culmination of 2024 investments and openings, we believe that we'll have positioned the company for long-term growth across all geographies.
We have stressed from the outset of this process, we approach these opportunities with a singular focus on the long-term prospects of this business. These investments were never about the current quarter, the next quarter, or frankly, next year, but an opportunity to transform our footprint and market positioning into the future. In the next year, we will focus on continuing to develop our new markets by introducing new customers to our service and continue to expand and support the success of current customers.
We'll continue to invest in equipment, technology, and facility enhancements or relocations to support this value proposition. Because we've opened these facilities with the focus on the long term, we've only begun to start capturing the value of these investments. As the LTL market develops, there will be opportunities for us to supplement our network with additional facilities. In the nearer term, we see great value and potential in the footprint that we have developed. We're now ready to open the line for questions, operator.
Operator (participant)
Thank you, and we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we do ask that you please limit yourself to one question and one follow-up. Again, it is star one if you would like to join the queue, and your first question comes from the line of Ken Hoexter with Bank of America. Your line is open.
Ken Hoexter (Managing Director)
... Hey, great, and great to see the contract renewals over 7%. Great quarter.Frederick, or Matt, can you talk about the sequential growth in October? It looked like maybe tons and even weight per shipment, revenue per hundredweight. Looked like, based on the numbers, started to accelerate at the end of September, at the end of the quarter. Can you talk a little bit about how September, October are shaping or October is shaping up? And then, Matt, did you mention a one-timer in workers' comp? Is that something you can put a scale on?
Matthew Batteh (EVP and CFO)
Hey, Ken. I'll go ahead and give the monthly numbers just so you have them. So in July, shipments per workday up 10.6%, tonnage per day up 5%. August, shipments up 7%, tonnage up 8.2%. September, shipments up 8.6%, tonnage up 10.1%. And October to date, shipments up about 4%, tonnage up about 6.5%. And keep in mind, in October, I mean, we're comping a period where Yellow had a cyber issue, you know, plus there was a hurricane in the early part of October as well. So comps are a little bit strange month to date, just in that number as well.
But in terms of September, I mean, it's, you know, we're starting to lap the Yellow period at this point in the industry disruption. So, you know, it moves around a little bit in Q3 based on when that really started happening in the back half of July, so that plays into it. But we're also opening a lot of new facilities, and we are expanding our addressable market and should be seeing that. So we feel good about our progress there. And then in terms of work comp, nothing one-off, just part of the business development of those open claims and things like that. So nothing to call out there.
Frederick Holzgrefe (President and CEO)
Greater headcount.
Matthew Batteh (EVP and CFO)
That's right.
Ken Hoexter (Managing Director)
And just to wrap that up, the weight per shipment, sorry, that also accelerated in September, right?
Matthew Batteh (EVP and CFO)
Yeah, just with those shipments and tonnage numbers, it's a little bit at the back, but I mean, it's modest, right? Those we've talked about it before, mix can move around a little bit. So, any given period, based on what you're handling for customers, it can move around a little bit.
Ken Hoexter (Managing Director)
All right. Appreciate that. Then, I guess my follow-up would just be on the environment. You talked about,Frederick, you mentioned the mix. You kind of felt like it was done last quarter. How do you feel, I guess, at this stage, now that you've got all these new facilities ramped up? Are you-- You mentioned last quarter you thought it was done, but now you're talking about a little industrial overhang. Is the market stabilizing out there, you know, in terms of, you know, if you look outside of the new facility development?
Frederick Holzgrefe (President and CEO)
You know, Ken, the way I would think about it is it's probably somewhat comparable, Q2 to Q3. You know, it's bouncing around a little bit. I don't think it's markedly better or worse, so it's just there's a little bit of noise in there. I think as you open up new facilities, you do have... You know, typically, the new volume typically looks like the rest of the portfolio, if you will. So we haven't really seen an impact one way or another there.
Kon Hoexter (Analyst)
Wonderful. Appreciate the thought. Thanks, guys.
Frederick Holzgrefe (President and CEO)
Thanks.
Operator (participant)
Your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open.
Jordan Alliger (Senior Equity Research Analyst)
Yeah, hi. I was wondering if you could talk a little bit more about the revenue per hundredweight ex fuel. It was up 1.7%. I know you touched a little bit on mix and price, but, you know, maybe talk a little bit more about that and perhaps how that yield trended through the quarter, and how we could think about it looking into the next quarter, the Q4. Thank you.
Matthew Batteh (EVP and CFO)
Again, I mean, mix impacts that a little bit. So, you know, we typically look more at revenue per bill rather than the yield, just because the mix has an impact on that. But we feel good about where we stand. I mean, we, our contractual renewals number, where it is, continues to remain strong, and freight moves around a little bit when you take a rate increase at times. And with the macro backdrop where it is, there's customers that may go find other options, and we're willing to let that walk. We're not gonna go chase that, so it's gonna come back to us. So we feel when the environment needs it and when the, you know, when the customer needs good quality of service. So we feel good about that.
The other thing is we put a GRI in earlier this week at a rate of 7.9%. So we continue to remain focused on mix management and making sure that we're getting the margins on what we expect from customers. So our focus has not changed on that. It's, it's heightened the GRIs earlier this year than it was last year, and we feel really good about our marketing position, our market position and our addressable market, and we put that into place a little bit earlier than in the past.
Jordan Alliger (Senior Equity Research Analyst)
And I guess just sort of, is there a way to think about how the yields, however way you look at it, could shape up as we go from the Q3 to the Q4? Thanks.
Matthew Batteh (EVP and CFO)
Well, again, mix is gonna impact that a little bit, depending on what happens. Our view of the industrial backdrop, we're not seeing anything on our crystal ball that tells us that Q4 is gonna all of a sudden turn and get better. If it does, great, but we really remain focused on the same thing. Like I said, we put the GRI in place. Whenever we do that, there's a little bit of shipment shifting in the periods that follow. So we'll experience a little bit of that, but we remain focused on making sure that through contractual renewals, through discussions with customers, we're focused and committed to driving price. We know that's our opportunity.
Jordan Alliger (Senior Equity Research Analyst)
Thank you.
Operator (participant)
Your next question comes from the line of Daniel Imbro with Stephens. Your line is open.
Daniel Imbro (Managing Director)
Yeah. Hey, good morning, guys. Thanks for taking our questions. Maybe I'll start on a sort of focused one. Just follow up on the October discussion. Can you remind us what maybe normal seasonality is from an OR standpoint, from three Q to four Q? And then maybe given the improving weight per shipment and just the tonnage growth, how do you see this year shaping up versus that normal range?
Matthew Batteh (EVP and CFO)
Sure. So what we try to do with this is look back at recent history and do our best to find some comparable periods. So if you look at that, over the past handful of years, the sequential degradation's right around 250 basis points on average. There's obviously some years on either side of that, but that's the average, if you look at some of the more recent periods. But with the momentum we have now and what we feel like from a customer acceptance standpoint with our new markets and our expansion, we feel like we should be able to beat that. And that's kind of where we're targeting at this point.
Daniel Imbro (Managing Director)
Oh, super helpful. And then maybe for stepping back a little bit, you know, thinking about 2025, so this year's clearly been pressured by startup costs. It sounds like execution is going well there with the new terminals. How should we think about or should we think about expense growth moderating in 2025 as terminal growth moderates, so that these actually become good guys for incremental margins? Or, or what's the right way to think about incremental margins into 2025 as we start to lap really a couple of years of elevated investment across the network?
Frederick Holzgrefe (President and CEO)
Yeah, I think there are a couple of elements to that. So you know, we're not, we're not going to open have an opening year of twenty-one facilities like we are this year, anytime in my too distant future. I just, that was a lot for us to take on, but we also looked at it and said, "This is significant opportunity. We've got to, we've got to take advantage of it," and we have. You know, I think as we look into next year, what you'll see is now we're a much materially bigger company than we were a few years ago. So the level of ongoing sort of maintenance, capital, and sort of thing is gonna have to. Hey, the fleet's bigger, the bigger facility footprint, that sort of thing, to maintain those assets.
You won't see the openings next year. I mean, maybe there's a small handful, you know, five, six, something like that, depending on what the environment looks like. You'll see us relocate facilities next year. Those we view as sort of negligible costs because you generally, the ones you have to relocate are ones that, you know, maybe you've stretched capacity or filled capacity, so you're moving to something that's got a little bit more operating flexibility. So what we really, really like is we're going to exit this year with 214 well-positioned facilities across the country that are positioned to really drive value for our customers. And when that happens, that gives us the opportunity to really drive value in our business. And I think that that's...
We made the investments this year with an eye to long-term value creation, and I think that that's. We kind of spend more of a value-creating mindset. Not that the investments weren't value creating. They, they absolutely were. But in the short term, investments require that, you know, there's a cost. Those things aren't free. Opening 21 terminals are not free. Now, when you monetize those, you expect to provide great service to a customer, and when you do that, you, you know, you look to get paid for it. And that's where the return comes, and we're really excited about what the ones that we opened, the facilities we opened just in the Q2. I mean, they're profitable already. Now, they're not at the company average, which says they've got runway, and those are great assets, and it's great that we, we opened those.
So I think as we look into next year, it becomes more of a, you know, kind of let's capture the value of the facilities. Now, you know, if we get a stronger freight backdrop next year, I think we can really accelerate as well. So I'm excited about the prospects. We did these things, we made these investments with a purpose, and now is the time to really capture the value of that.
Daniel Imbro (Managing Director)
Thanks so much.
Operator (participant)
And your next question comes from the line ofThomas Wadewitz with UBS. Your line is open.
Thomas Wadewitz (Managing Director and Senior Equity Research Analyst)
Yeah, good morning. I know you offered some maybe high level, and yeah, I guess thinking about now in 2025 or kind of the, you know, with the new terminals, what you're going to do, focus on value or maybe focus on margin. That sounds like a little bit. How do you think about what's the potential for margin improvement if the macro in 2025, if the macro is stable, right? Like, it'd be great to have some cycle help, but you know, it seems like with your traction with customers, you'll improve utilization of terminals that were open Q2, Q3. You know, your contractual renewals sound quite strong, maybe mix is stable. So, just any thoughts about can you get the normal hundred to two hundred and fifty basis points of improvement, if you don't get help from macro in twenty-five?
Frederick Holzgrefe (President and CEO)
Yeah. Thanks,Thomas. Listen, this is an opportunity for us to get back on our sort of normal cadences. Let me be really clear. I think I used the word value. I think a 214 terminal network across the country that's providing a very high level of service shouldn't be a value. There's a pay for. There's a, people are paying for service in that case, and I think we're in a position we can do that. I think in a you know, kind of an environment that is sort of tepid, neutral, however you want to call it, I think we're in a position where we can expand OR into next year. I think what's really exciting is if you get in a more positive, stronger environment, I think the business scales.
I love the idea of scaling some of these facilities that we have just opened. You know, we have never been about growth for growth's sake. We have been about, let's get the addressable market right, because we think we can provide something to customers. When we do that, we have an opportunity to drive returns in the business. I think next year is the beginning of that, right? I don't see an impediment for us in the next year. You know, if we get a reasonable environment, I think we're in a position we can grow the OR, and I think, you know, the range you provided, the 100-150, that's in scope for sure. Could it be better than that?
Matthew Batteh (EVP and CFO)
We know how. I mean, if you look back in history, when a tighter environment or an environment where there's more macroeconomic growth, you know what Saia will do.
Frederick Holzgrefe (President and CEO)
And I think that's... We execute that playbook. That's how we operate.
Thomas Wadewitz (Managing Director and Senior Equity Research Analyst)
Okay. And then for the second question: How do we think about the levers on mix? I guess if I go pre your big expansion of, you know, the terminals, it seemed like you, you know, pretty consistently focused on improving weight per shipment and mix, and that was part of the margin improvement equation. Is that something you can fairly quickly, address and, you know, kind of go back to that in, say, Q1 or Q2 next year? Or does that take longer? Just 'cause, you know, recognizing that the mix has changed a lot as you brought on, you know, more retail freight and more, you know, more terminals.
Frederick Holzgrefe (President and CEO)
You know,Thomas, what I would say is, first and foremost, we've got to really continue to focus on pricing, and which we have been. You look at our contractual renewals, you look at the GRI we had on Monday, we're not giving up on pricing. There's it all has got to get. If we get the business to where we want it to be, everything, the rates have got to go up across the board in all elements of the business. I think that what we continue to do, though, is that we continue to look for customers, market opportunities, where somebody says, "Hey, we really appreciate the value we get from Saia in terms of this high level of service, the reach of this national network now.
We can now, you know, ship more of our wallet with Saia because we don't have to worry about them handing off freight and markets. We can look at it and say, "Saia can go to all these two hundred and fourteen facilities," so I think that's an opportunity for us to continue to reinforce that with customers, and I think that you get into the equation where, you know, we're, you know, we get the appropriate pricing in place, and, you know, that'll find, we'll find customers that find great value or opportunity in the assets that we have, and that's a way for us to improve mix over time.
Thomas Wadewitz (Managing Director and Senior Equity Research Analyst)
How much of the freight were you handing off, just to understand that part of that comment previously?
What %?We haven't given a percent out. I mean, and those markets aren't necessarily the largest ones, but it's, I mean, it's impactful, right? Not. We think about it as an opportunity to improve that portion of it, certainly, but more importantly, we can offer direct service in those markets, and we know that our customers want us to handle it all the way through, and that's very important to us in making sure that we can address that, and that's big. That's why we pushed those facilities and opened them in the period, so... and then I think in terms of the mix, too, keep in mind, every new terminal opening is an opportunity to speak with our existing customers about what we do for them.
Matthew Batteh (EVP and CFO)
So it's an opportunity to talk about business that we may not have had an opportunity to get a shot at in the past because we couldn't handle it direct in and out of those markets, and now we can at full nationwide coverage. So you may not necessarily get that the next day when you open, but when we get the opportunity to share with our customers that we can provide a solution for everything, that's impactful.
Thomas Wadewitz (Managing Director and Senior Equity Research Analyst)
Okay, makes sense. Thank you.
Operator (participant)
Our next question comes from Fadi Chamoun with BMO Capital Markets. Your line is open.
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Yeah, good morning. So thank you for taking my question. So in the last couple of quarters, you've outperformed your kind of five, ten-year average in terms of shipment per day by maybe two hundred, two hundred and fifty basis points. That's quarter over quarter, just looking at it. I mean, if we apply the same principle going into Q4, that would put you in the high single digit kind of shipment per day. Just want to kind of test this assumption. How do you feel about it?
Frederick Holzgrefe (President and CEO)
Yeah, I think, Fadi, it's... What I would offer is that, you know, we know we get a little bit of shipment disruption that comes with, well, anytime we do a GRI, you know, you see a little bit of movement around there. This quarter, you know, we started the quarter, the comp, the last year, we mentioned that we saw a bit of, you know, a little bit of a challenging comp because of what we saw happen with the peer a year ago. So that's kind of another sort of factor in there. And then we started the quarter kind of dealing with the remnants of a hurricane and another hurricane.
So I think all those things create a fair amount of noise around sort of shipments into the quarter, and not to mention that it's a seasonal quarter, meaning that, you know, holidays come into play. I think what's important, though, is that over time, and I think you're starting to see it with our shipment growth, our revenue from bigger part of the pie. And so our history is, it's changing, if you will. So it's, you know, we've got a different sort of baseline. And so I'm excited about it. I think we continue to grow through this.
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Okay, just going back to the OR seasonality question?
Frederick Holzgrefe (President and CEO)
Fadi, are you still on the call?
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Yes.
Frederick Holzgrefe (President and CEO)
We got dropped there. Hello, operator?
Operator (participant)
Yes, we are still connected. Can you hear me?
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
... I'm on the line. Can you hear me?
Operator (participant)
And, ladies and gentlemen, we will pause for just a moment while we try to reconnect our speakers. And ladies and gentlemen, thank you for standing by. We are now reconnected with our speakers.
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Hi, can you hear me now?
Frederick Holzgrefe (President and CEO)
Hey, Fadi. We can hear you loud and clear. Can you hear us?
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Okay. Yes. Yes, we can. Thanks. So,
Frederick Holzgrefe (President and CEO)
All right. What part of the, what part of the question did we drop off?
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
I heard your entire answer, so I think we're fine from at least-
Frederick Holzgrefe (President and CEO)
Okay
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
my perspective. So, to
Frederick Holzgrefe (President and CEO)
My follow-up question, Fadi, did you hear the part about how disappointed we were that the phone wasn't working?
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Yes, we heard that too.
Frederick Holzgrefe (President and CEO)
All right, perfect.
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
So-
Frederick Holzgrefe (President and CEO)
That'll go down, that'll go down in history as a kind of a great moment there. All right, got it.
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
So yeah, you know, you're gonna give us perspective on the volume side, but, I mean, you know, I think it feels like there's no reason for you to continue to kinda build that momentum with the new terminal opening, which could put your shipments kinda quarter over quarter at a pretty solid pace. And with that perspective, I'm just wondering, like, why wouldn't the operating ratio seasonality kinda follow a little bit closer to the shipment seasonality, given that your startup cost is kinda in the rearview mirror at this point, and, you know, we should start to see that operating leverage beginning in Q4? I just wanted to see if we can kinda narrow this, you know, the range or this thinking about what OR could look like in the Q4.
Frederick Holzgrefe (President and CEO)
Hey, Fadi. Sorry for the connectivity issues. I mean, look, you always... It's Q4, right? It's a seasonally slower period. There's always the challenges associated with that, but we're not we still have openings in this quarter, right? I mean, they're not as, in terms of magnitude, they're not as big as what was, you know, the count that was done in Q3, but we still have openings associated with the Q4, so those aren't zero. Now, Like Frederick said earlier in his commentary, we've got as we continue to move past, you know, further from the openings like we did from Q2 to Q3, those get better. We still have the Q4 challenges and customer closures and things like that that are just normal for the Q4, but we do have openings that are still gonna be embedded into the costs in Q4. They're still there.
Fadi Chamoun (Managing Director and Senior Equity Research Analyst)
Okay, appreciate it. Thank you.
Operator (participant)
Our next question comes from the line of Brian Ossenbeck with J.P. Morgan. Your line is open.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Hey, good morning, guys. Thanks for taking my question.
Frederick Holzgrefe (President and CEO)
Hey, Brian.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
I wanted to ask about the Mastio survey that just came out. Obviously, there's a little bit of a backslide in some of the performance on a relative basis, but I think it was done through June through September timeframe, so clearly a lot of startups that were going on there. So, it's just one data point. Obviously, you look at service and everything internally pretty well, but it's one that we can all see from the outside. So just wanted to get your perspective on what the most recent results mean from your vantage point.
Frederick Holzgrefe (President and CEO)
So good question, Brian. So, a couple things. I would say that, if you look at the Mastio data in total for the industry, so the entire industry got better, in terms of kind of performance to the customer, which I think for the customer base, that's a total positive. I think if you look at what industry growth looked like, you know, kinda across the board, you look at the public competitors, and we see, declining sort of shipments and tonnage across the space, except for Saia. So we've taken on a larger, percentage or larger part of the industry. We have grown in new markets. As we noted, well, by the end of the year, we'll have 21 openings. So that means new customers, new experiences, new demands, adjustments to customers.
Throughout that, we've had to hire, you know, probably, you know, somewhere around 1,500-2,000 new employees over the last year or so to support all that. What it says is that, you know, that was a challenging environment in which we operated in. I can tell you across the board internally, when we look at the data, we go through it and we say, "All right, we've got some in here that are positive." As we further analyze the data, we distill that down to our region and our terminal locations, and then we work at it. We say, "Listen, it's gotta. We're gonna keep getting better.
We're gonna keep our focus on that and not lose sight of the prize." Our internal metrics have trended favorably, but you know what? Listen, the feedback like that says that we just gotta keep doubling down. I think that as we continue to develop experience with the customer set and new markets, you know, I think we'll be in a position where they come to expect and understand what the great service they get from Saia.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
All right, appreciate that perspective,Frederick. Quick follow-up for you, Matt. In terms of, it might be difficult to tell, but obviously, the hurricane was pretty disruptive for a lot of transportation networks and some of your customers. So is that part of the noise that you feel like you're seeing in October? Maybe it's a little bit too hard to tell, but do you feel like there's at least a, maybe a little bit of a catch-up that you might see throughout the rest of this month as some of this you know gets behind and recovery efforts start to pick up speed a little bit?
Matthew Batteh (EVP and CFO)
I mean, thankfully, we haven't had any impact to our people or terminals or, you know, major issues, but there absolutely is an impact in that month to date, right? I mean, you have a pretty big storm that rolls across the Southeast geography. Those are pretty big markets for us and make up a good chunk of our revenue. So there is an impact in there. One of the things that we see is that sometimes that volume doesn't always come back. It's... You're really dependent on order flow at times, and really, we may be operational, but some customers may still be closed, so you face that a little bit. So things are coming back online, certainly, and we saw that in the week or so after that.So it is in the October month to date numbers, but, you know, just part of the challenge in the business. But you don't always get all of that back just based on patterns and different order flow.
Frederick Holzgrefe (President and CEO)
Yeah, and I think you gotta keep in mind that the sort of Florida, Georgia, Carolinas, that's becoming a bigger and bigger part of Saia's business, reflecting investments we've made in the last few years. And you know, having Helene land right on the end of the quarter, that certainly had an impact on the Q3 result. Then you have that. You know, you start to recover, and then you get another hurricane the following week. So yeah, that's been part of the noise we deal with, and we, you know, that's part of the business that we're in. And you know, we have to be able to flex and adjust to it, but it certainly, you know, it did have an impact on the third and early parts of this quarter.
Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)
Okay. Thanks for the time. Appreciate it.
Operator (participant)
Your next question comes from the line of Eric Morgan with Barclays. Your line is open.
Eric Morgan (VP)
Hey, good morning. Thanks for taking the question. I wanted to follow up on pricing. You know, you've had at least a few quarters now with those high single-digit contract renewals, obviously the seven and a half percent GRI last year, I think almost eight percent this year. So, if mix doesn't move around too much substantially from here, should we start to be seeing some of these types of increases in your realized yields as we get into 2025 at some point? Or, you know, what are some of the other variables we should be considering as we think about modeling that?
Matthew Batteh (EVP and CFO)
I appreciate the question, Eric. As you know, the biggest, one of the biggest challenges in our industry is that contracts, there's really no volume commitment, so we have to always make sure that we're getting what we expect from customers. And the environment where we are now, you know, shippers have options, and they may move things around or try someone different in a period like this, and we're not gonna chase that. But all else equal, we're putting rates in at the level that we expect, and when the macro gets a little bit better, that should certainly help, and we expect to push that forward.
It's not always linear, but it's an opportunity for us to put the rates that we need in front of our customer, and our sales team is doing a great job negotiating those and speaking to the customers about the value we provide. The other thing that should continue to help us support that is at a national footprint. We can do more and more for customers than we've ever been able to do, and with a larger addressable market, it should allow us to gain larger share of wallet and mix up with customers where that's the opportunity around that, so we feel good about what we've been putting in, and in a soft backdrop, we're confident that we'll realize some of those gains.
Eric Morgan (VP)
Appreciate that, and maybe just a quick follow-up on the CapEx discussion. I think you've mentioned some normalization next year after, you know, the bigger year this year. Any early thoughts on where that could land in twenty twenty-five and kind of what the big buckets would be? Appreciate it.
Matthew Batteh (EVP and CFO)
Yeah, I mean, we're still working to finalize what that number looks like. But if you think about the number this year, less the one-time transaction at the beginning of the year, I think that's probably a fair range to start with. The business is bigger now, so that CapEx number is gonna stay elevated. We've got to support the teams with equipment, and there continues to be real estate investments. But I think if you normalize for that big transaction at the beginning of the year, that's a fair range to start with.
Eric Morgan (VP)
Great. Thanks a lot.
Operator (participant)
Your next question comes from the line of Jonathan Chappell with Evercore ISI. Your line is open.
Jonathan Chappell (Senior Managing Director)
... Thank you. Good morning. Fritz, you called out specifically, you were pleased with the terminals you opened in the Q2. So as we think about the seasoning of these terminals and as you have a full quarter of implementation, is there any way to kind of frame out what the utilization of the terminals that you opened up in the first half of the year look like relative to these 11 that you opened in the Q3, to help us kind of frame out when those can get to a level where you feel it's closer to full utilization?
Frederick Holzgrefe (President and CEO)
Yeah, It's probably going to be a few years before full utilization, because we've described before, is that we don't make an investment with the idea that we got to fill it up on Monday, right? So we make an investment with the idea that we have, you know, it's a few-year runway to support the market. The facilities we opened up in the Q2 were of much larger scale than the facilities that we opened up in the Q3. So, to try to compare what a fantastic facility in Butte, Montana, looks like to a facility in Laredo, Texas, or Garland, Texas, or Trenton is really not. It's sort of apples and oranges. They have different roles in our network.
So I think what we would point to is that as we continue to focus on, you know, further finding the customers that match or are interested in what we have to offer, and we continue, we'll grow in those ways. I think that the big facilities that we opened, where I'm really pleased about, and that shouldn't be overlooked, is the fact that, you know, within a quarter, we have them all contributing from an operating income perspective. That's a big deal. That's why you make investments that in a challenging environment. So we put those in place. I think they'll continue to improve from here. Now, you're in the seasonally lower time, so you probably are going to have to see the same level of improvements for those facilities into the Q4.
The facilities that we opened in the Great Plains, we're really excited about those because I think that really enhances the value proposition for our customers when they know that when Saia picks up freight, it's going all the way to the destination. So those over time will have an important complementary role to the overall network business, and it'll be certainly a big part of creating a lot of value for our customers.
Matthew Batteh (EVP and CFO)
And keep in mind, too, John, that that's a brand-new geography for us, right? Entering a new geography-
Frederick Holzgrefe (President and CEO)
Mm-hmm.
Matthew Batteh (EVP and CFO)
is very different than putting a second facility in a Garland, Texas, area where we've been. So it... LikeFrederick said, it's not overnight, and we don't design them to be overnight, but it, that's a different animal in terms of brand recognition and sharing with customers that we're in a completely new geography. So they're all a little bit different.
Jonathan Chappell (Senior Managing Director)
Right. Yeah, that makes complete sense. Matt, just a quick one for you. I know it's minutiae, and I know the fuel is a pass-through, but your fuel surcharge revenue was almost flat quarter over quarter, despite fuel dropping. You mentioned that diesel prices are down 13% year over year. Fuel surcharge revenue is down less than 5% year over year. Some of your peers have already reported at much bigger step downs, both sequentially and year over year. Do you just have, like, a better surcharge mechanism, or is there some lag where this decline in fuel prices that we've seen, you know, basically over the last couple of months kind of catches up in 4Q?
Matthew Batteh (EVP and CFO)
Fuel is not a pass-through. I mean, we invest. Every part of this business is inflationary, and we expect to make a return on every part of it. The fuel surcharge mechanism is similar to what's out there for other LTLs, but the mix of business does have an impact. Keep in mind, when it's a percentage of revenue, so when we're raising rates on customers, we have an opportunity to get more from a fuel surcharge standpoint. I mean, I think one thing to think about in terms of us, our volumes are up, right, compared to some others. That plays into it as well, but nothing to comment on there. We haven't put anything different on the fuel side.
Jonathan Chappell (Senior Managing Director)
Okay. I got it. Thanks, Matt. Thanks,Frederick.
Operator (participant)
Our next question comes from the line of Christopher Wetherbee with Wells Fargo. Your line is open.
Christian Wetherbee (Managing Director, Head of Transportation & Shipping Research)
Hey, thanks. Good morning, guys.Frederick, I think on the last call you mentioned that facilities open in the last three years kind of were operating at around about a 95 OR. You know, you talked about Q2 facility openings turning positive in the Q3. I guess I'm just curious, as you think about that metric that you gave last quarter, does it change at all? I know it's only a quarter, but I'm kind of curious if you feel like you're making more or less progress relative to, you know, what you have seen in the past, just given the sort of density that you're adding to the network, these new regions, and creating this sort of 48-state contiguous network.
Frederick Holzgrefe (President and CEO)
Yeah, you know, we're real pleased with what we're seeing. I think the key thing in this and why it can vary a little bit, I mentioned in the last question, is that terminal openings can have different sort of roles, right? Some facility might provide a really high-level solution for a customer in an end of the line, right? So those facilities are going to take a much longer time to kind of get to company average OR or be a big contributor. So those, some of those that we've opened historically have been in that sort of met that definition, and certainly, the ones we opened in the Q3 kind of met that definition. What's really exciting about the Q2 facilities, and frankly, all of them, is they're making progress.
The Q2 ones are big ones, and those were some of the bigger investments we made around purchasing assets. And it's real nice to see those progress, to see them scale in big freight markets, and then see them being part of making those end-of-the-line facilities continue to be a value creator as well. I mean, you know, the great thing is that those Great Plains states, there's a customer that's bringing freight in from Mexico into Laredo, and we've got a shot now to go direct from Laredo to all of Montana and The Dakotas. And those are really nice value-enhancing competitive opportunities for the customer.
As you cobble together a network, you know, Laredo is gonna scale faster because it's a big facility, but then you're gonna get the value out of those smaller facilities because you're in a position, you can do a great job for the customer in those markets. We couldn't do that before. I mean, we had customers before that said, "Hey, Saia, you're fantastic, but we understand you hand off freight into those markets. And once you get that solved, we'll, we're with you." Well, they're with us now, right?
And so I think that that's the because of that sort of dynamic, when you look at the trend over time, the ones in the Q2 have a bigger impact now because they're larger, but the great thing is the progress of all of them over time, over the last couple of years, it's really exciting to see. And that will play itself out over the next year, years, as we continue to develop the network.
Christian Wetherbee (Managing Director, Head of Transportation & Shipping Research)
Okay, that's helpful, and then, you know, towards the end of your prepared remarks, you know, you, you're talking about the network and what you have now and, and maybe how that looks over the course of the next, you know, year or two as you let that kind of grow and, and build out. I guess I'm curious, you know, there's still gonna be more assets available. Presumably, most of these, if not all of these, were sort of reviewed during the first process through the Yellow auction. Just kind of curious how you think about that. Is that something that has interest to you, or what you have right now for the next, you know, twelve to eighteen months is kind of what you need?
Frederick Holzgrefe (President and CEO)
So I think as I look at the 214 that we have in place right now, or by the end of the year we'll have in place, that particularly the 21 we opened this year, there was a really compelling business case around all of those, and so we're excited about that. The ones that we'll relocate into next year have similar sort of compelling things. But one of the things that we have to be very mindful of in this business is that over time, there are gonna be places that we have the opportunity to enhance the network that we're in. And as these assets trade in the market, you know, we'll be a participant in that. We won't be a participant in it at the level that we just were.
But, you know, sort of the onesie, twosies, and two or three here and there, or, you know, down the road, a couple of years from now, maybe there's a year that's five or six or something like that. I think we're positioned to be able to do that. There are markets that even today, we're thrilled with the map we have, but we also see opportunities. But as we think about it as a business today, there's a lot of value to create out of the facilities we're gonna exit this year with. And then there'll be some that we can add on. We like the idea of, you know, participating in a secondary market around these facilities as they may or may not become available. You know, I think that that's a long-term opportunity.
We've proven, to go back to 2017, we've proven we know how to organically grow, so you know, and we're opportunistic around the real estate. I mean, even look at the ones that we've opened up this year, there are ones that we opened up that didn't come through the Yellow auction process. They were in our pipeline, and there'll be others like that down the road.
Christian Wetherbee (Managing Director, Head of Transportation & Shipping Research)
Okay, that's helpful. Appreciate the time this morning. Thanks, guys.
Operator (participant)
Our next question comes from Jason Seidl with TD Cowen. Your line is open.
Jason Seidl (Managing Director)
Thanks, operator. Morning, gentlemen. I want to go back a little bit to October to sort of better understand how we should look at 4Q tonnage. You know, if we push the hurricane impacts aside early on in October, and we take away the impacts of the cyberattack on one of your competitors last year, is this 6.5 look closer to double digits?
Frederick Holzgrefe (President and CEO)
I don't know that I would go there. You know, I think, Jason, what I would focus on is kind of our commitment and focus on driving results out of this business. So we're not in it to try to lead the league in growth. We're here to. We've got a footprint that we're trying to expand. The volume will come. We're not chasing volume. So, yeah, there's disruption that's in there that is, you know, had an impact on results. Sometimes it's interesting when you have weather events, sometimes you just don't see the volume again. So it, you know, it's kind of how it goes. We're focused on, you know, continuing to deliver for the customer, and we're gonna get our share out of that.
And the openings that we've got, they're organically gonna contribute. I mean, if you look at sort of the growth that we've had this year, more and more of it is coming from facilities we've just opened in the last three years. I mean, it's becoming a material part of the business, and we're not in it to chase volume, right? It's just, "Hey, Saia is here. We know what we get from Saia, so we're gonna do business with Saia." That's where the growth is coming from. So we're not, I'm not in a position to really to comment on what it could have been. I just know what it was.
Jason Seidl (Managing Director)
Fair enough. Also, you guys made comments about potentially expanding some of the terminals that you've opened up over the past twelve months, maybe next year. What type of a market would we have to see to make you want to expand one of your recent additions?
Frederick Holzgrefe (President and CEO)
Yeah, sometimes what you do is you. Like, we've, we've got one facility that we've purchased, and opened, this year. And you know what? We, we already we see near-end runway around that, that terminal that we just needed to expand it, just create an efficiency, make sure that we've got the appropriate amount of flexibility in the facility. We're not when we, when we expand a facility, we're not, we're not thinking about next week's volume. We're, we're thinking about, all right, how do we make sure we provide a very high level of service? And then over the next number of years, we've got ample capacity to maintain a very consistent level of service for the customer.So, you know, we'll, as we get, you know, choke points in the network, we absolutely will add, expand capacity or maybe even relocate a facility. But, that's kinda how we think about it.
Christian Wetherbee (Managing Director, Head of Transportation & Shipping Research)
Appreciate the color, gentlemen.
Operator (participant)
Your next question comes from the line of Ari Rosa with Citigroup. Your line is open.
Ari Rosa (Senior Analyst)
Hi, great. This is Stephanie Moore, on for Ari at Citi.Frederick and Matt, thanks for taking the question. Your yield growth, maybe going back to pricing discussion, has been on a fantastic trend the last several years, and then the Mastio study confirms you're successfully taking pricing increases, especially this year versus last year. How much would that be a function, would you say, of your pricing gains catching up to your service that's improved over the last ten years? That's been something, part of your narrative the last couple of years. And then conversely, how much of that is a function of being able to provide a bigger reach of your network that you mentioned from your new terminal openings over the last few quarters?
Frederick Holzgrefe (President and CEO)
But I think it's frankly all the above, to be honest with you. I wish I could break it out, but what I would tell you is part of the compelling part of why you opened twenty-one facilities is you're focused on the long term, number one, and then you're focused on the idea that if you can repeat that level of service for customers that are satisfied with you, you've got a shot to organically grow into that network, and continue to repeat service for customers. And our...
You know, we've proven we know how to do that, and when that happens, we're in a better position to be able to say, "Listen, in order for us to continue to make the level of investments in this business," we approach the customers, and they understand that, hey, they're getting a lot of value from Saia, and we're in a position where we continue to focus on making sure that we're appropriately compensated for the level of investment. So, I mean, this year we're gonna spend $1 billion on the company, right? And that deserves a return. Customers get a return, we're gonna focus on getting a return. So that becomes part of our pricing thesis. That only works if we've got the appropriate reach in the markets for customers, and we continue to replicate that service.
Ari Rosa (Senior Analyst)
Great, thanks for the color there. Maybe as a follow-up, sticking with the study, going the other direction, on your service, you know, you've seen it decline a bit. How much would you say the area of your decline in service, which, you know, it seems to be from your new terminal openings, how much of that is from not yet building up a large enough customer base? And then how much of that do you think is from just a temporary decline in, you know, say, damage, on-time pickups, deliveries, just as normal growing pains, and it's temporary, and we'll be out of that phase in the next few quarters?
Frederick Holzgrefe (President and CEO)
Listen, I, Saia internally, as we... Typically, what we do with that Mastio data or the survey data is we disaggregate that, and we spend a lot of time figuring out how we get that on the trend which we want to be. We want to be best in, best in the business, right? And that's our focus, that's our commitment. You know, in the last year, we've grown this footprint substantially. We know that in a situation where your business is contracting or you're dealing with less volume with a customer, it's an opportunity to really enhance your service. You can certainly deliver, you know, high-level marks when your network is not stressed. We've grown faster than anybody else in the business.
We've taken on more customers than anyone else in the business. I would guess. Certainly, we're represented in that survey more than we've ever been, and that's a reflection of a growing footprint. More customers, more touches. We got 1,500-2,000 new employees that we've added net over the last year and a half to support that. We gotta make sure those folks are all understand that at Saia, this is how we do it. And for the folks that have been here for a longer period of time, it's a recommitment to saying, "Hey, listen, this is what makes us different. This is why we're outgrowing the industry." And we'll disaggregate that data.
Our teams across the network will be very, very focused on how do we get that back on a positive track? I'd point out that the industry in total got better, and yeah, our marks in some cases relatively got, you know, fell a bit. But I also think that I look at this is really a long game. This isn't about what's happened here in the last few months or even, you know, last year. This is all about the long game.
Ari Rosa (Senior Analyst)
Great. Appreciate the time and insights, as always.
Operator (participant)
Your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Thanks. Good morning, everyone. Just to follow up on the Mastio there, kind of seems like you have more details than we do on, on the data here. Do you have numbers on same-store customers ranking versus new customers? And that will, like, make it very clear that it's the new terminals that are the issue here, and that will take time to ramp up. And also, how much does something like this influence the pricing discussion with the customer? Like, is this something that, you know, just Wall Street's focused on, or kind of how much of a commercial impact does this have?
Frederick Holzgrefe (President and CEO)
Yeah. Sorry, Ravi, I don't have the level of detail you're looking for. We certainly disaggregate the data and spend a lot of time looking at it. I don't know that we have that specific carve-out. Listen, the customer cares about the customer's experience, right? So, we have to be intently focused on that because I think it's, for us, it is about supporting the long-term customer success. Customer has to have a LTL partner that supports that and has the reach and footprint to do that. Now, I think that as I mentioned earlier, the industry in total has gotten better. Saia, relative to last year, has got stepped back modestly.
But I think on a key, a lot of the key differentiators that are included in the thirty-some that are part of this survey, you know, we actually improved year over year, and a couple of them, we fell back. Some of them we fell back on are areas that are around pricing. So sometimes customers don't like the feedback that Saia's coming in and raising rates consistently or charging for accessorials consistently. Those are things that you sometimes, the customers don't, you know, don't like that, and you get negative feedback with that. So in some ways, that's actually a good thing for us, but that's not to say what we have to be able to do is be consistently better for the customer, and that's our focus.
When you're in a growth mode like we are and growing versus the rest of the industry, you know, you're taking on more customers that have new experience and haven't been with Saia before, and, you know, they have an experience, and we've got to make sure that we're, you know, delivering to meet their expectations, and that's where we'll long term be successful. We like the direction. We like the company's commitment to it. You know, we're not doubling we're doubling down on it, that's for sure.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Understood. That's really helpful. And maybe as a follow-up, just to go back to 4Q OR, I think you said normal seasonality that you have is two fifty deterioration. Kind of our model has something closer to one fifty. So I think the comparison is a little bit different. So just to level set, do you also have your normal seasonality benchmark for 1Q and 2Q? Thanks.
Matthew Batteh (EVP and CFO)
I mean, what you, Ravi, you maybe yours is going a little bit further back. I mean, one of the pieces for us that we try to do for this is if you, 10 years back is just not that valuable for us anymore. The company's changed so much over time. We've opened so many facilities, so some of those sequential trends just aren't really as valuable. So we try to look at something more applicable for the recent period, and we haven't given anything out for into next year, Q1 and Q2 yet, but we'll do that as we get closer to it.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Yeah, we-
Matthew Batteh (EVP and CFO)
Great. Thank you.
Frederick Holzgrefe (President and CEO)
We took the COVID year out of-
Matthew Batteh (EVP and CFO)
Yes, sir
Frederick Holzgrefe (President and CEO)
... out of the horizon, but we just looked back at recent years.
Ravi Shanker (Managing Director and Senior Equity Analyst)
Understood. Thank you.
Operator (participant)
And your next question comes from Stephanie Moore with Jefferies. Your line is open.
Stephanie Moore (Equity Analyst)
Hi. Hi, good morning. Thank you.
Frederick Holzgrefe (President and CEO)
Morning.
Stephanie Moore (Equity Analyst)
Just a quick one for me here. As a follow-up to, I think it wasThomas's question earlier, where you talked a little bit about twenty twenty-five, and I think clearly gave your view on a tempo, you know, scenarios in a neutral macro. But in that stronger environment scenario, how are you positioned to kind of take advantage of that inflection? Would we need to see incremental hiring, equipment, or anything else to position you to handle that inflection? Thanks.
Frederick Holzgrefe (President and CEO)
Yeah, that's a good question. I mean, listen, if you scale the business from here, right, we would certainly, our variable labor costs would certainly change as well. They likely would go up because and we would, you know, have to match driver counts if growth were higher than what we had expected. We feel like we're staffed well right now for, you know, kind of the environment that we're in. I think it's a pretty good match. But as you get out into the year, you can imagine a scenario in which, you know, volume's up, maybe it's up materially. Just throwing out as an illustration. You'd expect us to, you know, we'll scale the business, but we'll still have to add some labor costs, and the volume wouldn't be free. So I think it...
But I think what's really exciting, the big lifts, the 21 facilities that are open this year are going to be in position, and they will scale. That's why we did this. So you know, in a stronger background, I'd much rather be in a position. You start the year with 214 facilities, well-positioned, ready to go. And we know how to operate, and we know how to scale up if we have to. And we also know how to match down as we need to. If you got into an environment where maybe the volumes worked out, we would make adjustments on that basis. But it's the opportunity is certainly there in front of us, and that's why we made the investments that we've made.
Stephanie Moore (Equity Analyst)
Great. Appreciate it.
Operator (participant)
Your next question comes from Bascom Majors with Susquehanna. Your line is open.
Bascome Majors (Senior Industrials Equity Research Analyst)
As you think into the next year and talking about that, you know, CapEx preliminary spend of, call it, you know, this year's $1 billion or so, minus the $250 million or so you spent on the unique transaction, I mean, it looks like that would put you a little above your sort of long-term, high end of 15% of revenue. Are we tapering back into that range longer term? Just any thoughts on, you know, the, the investment in the business organically and, and when we might get to the point where, you know, you're inflecting on cash flow, the point where, where you might want to return some of that to investors, in dividends or buybacks? Thank you.
Matthew Batteh (EVP and CFO)
Hey, Bascom. Yeah. So I mean, certainly, if you look at a % of revenue, it's elevated. The couple of things to note in that, I mean, the company is bigger now. The to start to make sure we have capacity to flex with customers' needs, all of that's a bigger number than what it used to be. So that's in that as well. And, you know, for us, when you look at that denominator, pricing is a big player in that. If our pricing gets to market, naturally, everything else as a % of revenue comes back down. So it's... You know, we look at that and focus on that as well. Now, in the long term, it should trend back down as we continue to grow.
... as a business and close the pricing gap and look at it from a percent of revenue standpoint. But it remains elevated into next year, just as probably a little bit more heavy on the tractor side versus trailers this year. But longer term, that should continue to come down. And then to the second part of that question, you know, we're probably not too far out from having that discussion. The big transaction at the beginning of the year, probably first of all, it was the right move for us as a business, but that impacts that timing a little bit, but we're not too far out from that. We've proved that the return on capital for our approach has been very valuable so far, and it was important to continue to get the network built out, but we remain focused on making sure that the returns are there.
Bascome Majors (Senior Industrials Equity Research Analyst)
As a brief follow-up, to your point about getting your pricing to market, I mean, we can compare, you know, reported yields for you guys and peers, but there's obviously a huge mixed component there. What's your assessment of how far you might be below market, as we think about closing that gap over a multi-year period? Thank you.
Frederick Holzgrefe (President and CEO)
Yeah, good question. I think what I would... This is kind of how we focus on it. We look at public data and what revenue per shipment is and compare our revenue per shipment to others, and certainly we know there's some that have a mix of business that may or may not be the same as ours. But fundamentally, we look at those and say, "Well, maybe we ought to adjust our mix of business or can pursue a more optimal mix of business that, you know, allows us to get the pricing that, you know, we see others getting." That is fundamentally the opportunity, right?
And part of this, this network expansion is about making sure that we have the addressable market to be able to do that, and the opportunity to get the at-bats with customers, get their freight, do a great job for them, and get us to market more. You know, the network is more and more comparable now. It's a national network, comparable to any of those. So now it's just, we got to keep focused, and that's, that's a big opportunity.
Bascome Majors (Senior Industrials Equity Research Analyst)
Thank you.
Operator (participant)
Our next question comes from Christopher Kuhn with The Benchmark Company. Your line is open.
Christopher Kuhn (Senior Equity Research Analyst)
Yeah. Hi, Christopher. Hi, Matt. Thanks for the question. Just the- I know in the Q2, the terminals were larger, and some of the costs you called out on the call. As we think about the terminals for next year, anything to think about in terms of the size or the cost of the relocations, or are they going to be kind of like the Q3, a little bit smaller, a little bit more manageable?
Frederick Holzgrefe (President and CEO)
Yeah. The relocations are candidly pretty straightforward. I know some would say they're incredibly complicated. They're really not. Basically, what you do is you get the new facilities set up and ready to go, you know, have the drivers report, team report to a different location Monday morning, and that kind of gets you started. So typically, you don't see much in the way of overlap costs, those sorts of things. It's kind of game on. In many cases, you have immediate efficiencies. So relocations really don't have a meaningful impact on the cost structure. Typically, they offer some efficiencies or, you know, sort of those kinds of enhancements.
To the extent that we see opportunistic openings next year, they're going to be the scale of them. They may be, you know, it could be a range of sizes, but the impact on a business that is, you know, if you add a handful, four or five, to a footprint of two hundred and fourteen, with the run rate of revenue that we have, those are sort of more de minimis impacts. When you add 11 in a quarter like we just did, or 6 big ones like we did in the Q2, they have a meaningful impact. So I think as we go from here, you know, I think they'll have a smaller and smaller impact.
Christopher Kuhn (Senior Equity Research Analyst)
Yeah, that's helpful. Thank you.
Matthew Batteh (EVP and CFO)
Thanks, Christopher.
Frederick Holzgrefe (President and CEO)
No problem.
Operator (participant)
Your final question comes from Tyler Brown with Raymond James. Your line is open.
Tyler Brown (Managing Director)
Hey. Morning. Can you all hear me?
Frederick Holzgrefe (President and CEO)
Absolutely. Can you hear... More importantly-
Tyler Brown (Managing Director)
Yeah.
Frederick Holzgrefe (President and CEO)
Can you hear us, Tyler?
Tyler Brown (Managing Director)
We can hear you. Hey, Frederick, I want to come back to the new employee hire comment that you made earlier. I'm assuming that the vast majority of those are frontline. So how do you feel about frontline productivity? I mean, could productivity be a really big positive story in 2025, maybe even into 2026, as basically all these guys mature? I would assume your productivity metrics are probably considerably off your peak.
Frederick Holzgrefe (President and CEO)
Yeah. Listen, they are- there's an opportunity to improve that as our team matures. New folks on the team, really kind of... We feel like we've done a great job of onboarding people, but for that to really have that Saia sort of feel, you got to continue getting that experience and understand through thick and thin, this is what we do for the customer. And then I think as that grows, I think you also get efficiencies with that, productivity out of that. And then frankly, in a, you know, in a new markets, as you build density around those city pickup operations, that's naturally going to come just because you've got a, you know, you've got an infrastructure. You don't start out fully utilized. So there's the other leverage point there as well. So I think that, you know, going forward, I think there's a lot of ... out of that sort of, maturity.
Tyler Brown (Managing Director)
Yeah. Okay, and this is maybe a good fitting into the call. It's a big picture question, but you know, culture is obviously huge in LTL. You know this, I mean, I know this, I've seen it up close and personal. But how do you hold on to culture? I mean, you got so many new people coming in. How do your internal employee surveys look, and are they kind of where you want them to be? Thanks, guys.
Frederick Holzgrefe (President and CEO)
... So, our employee engagements, we measure that every year. And, we have, through the changes, we've maintained our employee engagement scores, which have been pretty high for the last three years, and we've kept that up. So we're thrilled with that, but you can always get better. And, so what we do is we break down the employee engagement scores down to all the managers in the company. And our thoughts are, is that, "Listen, you've performed well on your employee engagement this year. What are you gonna do next year to get even better?
And if you've got somebody that's got, you know, an engagement opportunity, what are we gonna do to train and support that person to be successful?" So yeah, we're intensely focused on that because, as you rightly point out, Tyler, this is a business that is... We can talk about capital, we can talk about all those things, but fundamentally, it's the people that make this happen. We have an awesome team. We'll continue to invest in our team, and we'll continue to drive engagement across this team.
So that's an important part of the success. That's why we feel pretty good about, you know, listen, this Mastio, you know, sort of change this year; this will be an opportunity. We got the team that's gonna engage on that because they think it's important. And, you know, the customers, the first thing is an important company making that happen. That's part of our culture. So we're well positioned for that. We just gotta keep it focused.
Christian Wetherbee (Managing Director, Head of Transportation & Shipping Research)
Perfect. Thanks, guys.
Operator (participant)
That concludes our question and answer session. I will now turn the conference back over to Mr. Frederick Holzgrafe for closing remarks.
Frederick Holzgrefe (President and CEO)
Thank you, operator. First, I wanna thank everyone on the call for their patience. I know that we had a little bit of technical issue here, at least for part of this, and we apologize for that and we know that it's been a couple of quarters of that, but trust us when we say that that is something that we'll continue to figure out a way to get that right. I know for the first ten years that I was with the company, we didn't have any challenges with it. It's just more of a recent thing, but we're on it.
But if there are folks that maybe didn't get all the detail that they were looking for, or feel free to reach out, and Matt and I will certainly field any questions that may have fallen through the cracks there. But if you did came in and out or the important thing is that we're really excited about kind of where the company is. We just opened eleven facilities in the Q3. Significantly, we're already starting to see a lot of value generated out of the six that we opened in the Q2, and this supports the long-term value proposition of the company. We're excited about the prospects going forward. Certainly, we've made significant investments in the business this year.
Those investments have an eye to the long-term success of the business. We're doubling down on focusing on taking care of the customer. That's our intense focus 'cause we see a lot of value that will provide the customers from this network, this now national network, into the years to come. So, we're excited about the position, and we appreciate your time and interest in Saia. Thank you.
Operator (participant)
Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.