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spk07: Good morning. My name is Devin and I will be your conference operator today. At this time, I would like to welcome everyone to the SCIA Inc. fourth quarter and annual meeting 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 have a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question at any time, please press the pound key. Thank you for your patience. I will now turn the call over to Doug Cole, SIA's Significant Executive President and Chief Financial Officer.
spk10: Please go ahead.
spk11: Thanks. Thanks, Devin. This is Doug Cole. I'm SIA's Executive Vice President and Chief Financial Officer. With me for today's call is Fritz Holskre, our President and Chief Executive Officer. Before we begin, you should know that during the call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and our actual results may differ materially. We refer you to our press release and our SEC filings for more information on these exact risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some opening comments.
spk18: Good morning and thank you for joining us to discuss SIA's fourth quarter and record full year results. Before I get into the discussion of fourth quarter results, I want to take a minute and express my thanks to the entire team here at SIA for what we achieved together in 2022. The year brought an additional 11 new terminals into our network and our team grew by more than 500 employees during the year. Most importantly, we kept the customer first and continue to provide leading service to our customers and doing so achieved record sales and earnings for the full year. Thanks to all of our SAIA associates who had a hand in these record results. Moving on to our recent results, December brought a continuation of the negative volume trends we experienced across the back half of 2022. In the fourth quarter, we averaged approximately 28,400 shipments per day, about 8.2% fewer shipments per day than in the same quarter last year and down from 30,500 shipments per day averaged in the third quarter. Weight per shipment increased modestly, so overall tonnage was down 7.7%. The slowing industrial environment, as evidenced by numerous reports, influenced these results across all of our business. On a brighter note, though, pricing remained stable, and our fourth quarter yield, excluding fuel surcharge, grew by 6.5%, and revenue per shipment, excluding fuel surcharge, increased by 7.1%. Total fourth quarter revenue rose by 6.3% to $655 million. Our continued strong service performance supported the contractual renewal increase of 7.4% in the fourth quarter. The contractual renewals reflected deceleration from the trend of the past several quarters and should be expected given the softer volume environment, but a solid number nonetheless. On a full year basis in 2022, total revenue of $2.8 billion was a record for SIA. It was up 22% from the prior year. Operating income rose 40% for the year to $470.5 million, and our operating ratio of 83.1 was 230 basis points improved from 2021. This was the best year in our nearly 100-year operating history. As we move into 2023, we've continued to see announced general rate increases across the market, are in the mid-single-digit range. And here at SIA, we implemented a general rate increase this past Monday, which averages approximately 6.5% across impacted customers. At the same time, our service indicators remain very strong across the business. We're committed to providing excellent service to our customers and are invested heavily in the business to expand coverage, and it's gratifying to see that our customers see the value in our service offerings. A GRI allows us to partially offset the rising cost of investing in people, equipment, technology, and our growing service footprint. Our fourth quarter operating ratio of 85.9 increased by 170 basis points compared to our operating ratio of 84.2 posted in the fourth quarter last year. I'll now turn the call over to Doug for more details from our fourth quarter and full year financial results. Thanks, Fritz.
spk11: As mentioned, fourth quarter revenue increased by $38.6 million to $655.7 million. The components of revenue growth in the quarter versus the fourth quarter a year ago were as follows. Our yield excluding fuel surcharge improved by 6.5% and yield increased by 14.3% including the fuel surcharge. Fuel surcharge revenue increased by 46.4% and was 20.1% of total revenue compared to 14.6% in last year's fourth quarter. Revenue per shipment, excluding fuel surcharge, rose 7.1% to $288.34, and including fuel surcharge, revenue per shipment rose 15% to $364.44. Tundas decreased 7.7%, attributable to an 8.2% shipment decline, slightly offset by a 0.5% increase in our average weight per shipment. Our length of haul decreased 3.5% to 892 miles. A further breakdown of activity in the quarter is as follows. In October, shipments were down 4.4%, and tonnage was down 3%, with a 1.4% increase in weight per shipment. In November, shipments were down 8.1%, tonnage was down 7.1%, and weight per shipment rose 1.1%. December, shipments were down 12.3%, and tonnage was down 13.2%. with weight per shipment turning negative down 1% in December. In January, shipments were down 3.9%, and tonnage was down 3.7%, with weight per shipment up slightly, 0.2%. Shifting to the expense side for a few key items to note in the quarter and how they moved with the acceleration of negative volume trends we experienced. Salaries, wages, and benefits increased by 5.3%, from a combination of our July wage increase, which averaged about approximately 4.3% across our employee base, and also the result of our employee count having grown by approximately 5.7% year-over-year. Purchase transportation expense decreased by 13.8% compared to last year and was 9.2% of total revenue compared to 11.3% in the fourth quarter of 2021. Truck and rail purchase transportation miles combined were 12% of our total line haul miles in the quarter compared to 19.5% in the fourth quarter of 2021 and compared sequentially to Q3 miles of 17%. Fuel expense increased by 41.5% in the quarter while company miles increased 4.3% year over year. The increase in fuel expense was primarily the result of national average diesel prices rising by more than 38% on a year-over-year basis. Claims and insurance expense decreased by 8% year-over-year in the quarter and was down 2% or 0.3 million sequentially from the third quarter. Depreciation expense of 39.6 million in the quarter was 10.3% higher year-over-year, primarily related to investments in real estate and equipment. Total operating expenses increased by 8.3% in the quarter, and with the year-over-year revenue increase of 6.3%, Our operating ratio increased by 170 basis points to 85.9 compared to 84.2 a year ago. Our fourth quarter tax rate of 24% compared to 23.9% in the fourth quarter last year, and our diluted earnings per share were $2.65 compared to $2.76 in the fourth quarter a year ago. Moving on to financial highlights of our full year 2022 results, as Fritz mentioned, revenue was a record $2.8 billion, and operating income of $470.5 million was also an annual record. Our operating ratio improved 230 basis points in the year to a record 83.1%. For the full year of 2022, our dilute earnings per share were a record $13.40 compared to $9.48 in 2021. I'll now turn the call back over to Fritz for some closing comments. Thanks, Doug.
spk18: While the environment certainly feels a bit more tempered to us than it did entering the past couple of years, I feel pretty optimistic about the road ahead. The December volume decline was a bit more pronounced than what we would have expected from a seasonality standpoint, but we do feel like some of that may have been the result of inclement weather that moved across the country over the last week or so of December. The extreme temperatures have resulted in some customers working limited schedules, and we saw that in reduced pickups. As we turn the calendar to January, volumes are catching up a bit better than expected may be the result of some catch-up from customers. If history holds, there will be more weather effects as we move through the next month and get into warmer temperatures in our seasonally busier months of the year. However, as we've learned over the past several years, as the environment is disrupted by weather or other events, the carrier that has the ability to adjust and restore service will continue to be a strategic partner of the customer supply chain. In terms of expectations, we have plans to open five terminals over the next three to four months and look forward to the expanded service and presence these terminals will give us. At the same time, we continue to develop the markets around the 18 facilities that we have opened over the last two years. Although we're excited about the early success of these locations, we see considerable runway to continue and penetrate those markets. Beyond that, we continue to work through a pipeline of more than 30 real estate projects which are under review and consideration as potential openings over the next several years. These terminal openings support our strategy of getting closer to the customer and adding value to the supply chain. With that said, we're ready to open the line to questions, operator.
spk07: At this time, I would like to remind everyone, in order to ask a question, please press star and then the number one on your telephone keypad. Our first question comes from Todd Fowler with KeyBank Capital Markets.
spk19: Hey, great. Good morning, Fritz. Good morning, Doug. Thanks for taking the question. So Fritz, it sounds like you just covered a little bit of like the January trends and it feels like maybe that there's some movement between late December and into January, but I guess I'm just curious in this environment, how you think about, you know, managing the staffing levels with kind of the volatility and freight, since you think about, you know, margin progression, either into the first quarter or even on a full year basis in 23, you know, what would your expectations be just given kind of where the environment is?
spk18: Yeah, I think the key thing for us, Todd, and, you know, we described the impacts that we saw with weather in December, and, you know, just the last few days of January, you actually saw the weather trends in the center of the country, and as you would expect, that influenced the results we have. But the key thing that we think about with any of this is that we want to manage our labor costs to match sort of what we need to do to deliver leading or exceeding service for our customers. So as we've gone through this last few months, as we've seen the trends, we've reset kind of our cost model. You see us insourcing more and more of our line haul costs versus what we had been doing, looking for opportunities to leverage our city drivers into our line haul network to maximize the utilization of all those important assets. Those people are key to driving the success for us as we come out of weather events or slower economic events to be able to match customers' needs and expectations or frankly exceed them. So we feel like that we're continuing to position ourselves for that. We've looked at the history of what we've seen sort of quarter to quarter from Q4 to Q1. We feel like we can keep that kind of in line with historic um sort of seasonality there keep the or flat maybe it gets better if things get a little bit better but i think we continue to manage to maintain service and we optimize and match our labor costs to what you know what the environment affords us so you know full year it's it's still um it'll be interesting to see how this develops um you know as to where this ends up but i think that you know we're in a position that we know that we're providing differentiated service That's going to allow us, and the environment certainly is going to continue to allow us to price for that. And I think that's going to be an important part of how we manage the overall investment in the business.
spk19: Yeah. Okay. Thanks, Fritz. And maybe just to that last point, and I'll turn it over after this, but on the pricing side, and you talked about the contract renewals coming in, I think, at 7.4, and that's down from what we've seen over the last couple of quarters, which have been very strong. you know, can you just speak to, you know, where you think you're at with your pricing ability based on, you know, your service improvements and the network and maybe your ability to kind of continue to close that pricing gap as you've made those investments and improved the service over the last several years?
spk18: Thanks a lot. Thanks, Todd. Frankly, I mean, it's to emphasize our focus is on keeping that customer front and center. And I think in that kind of environment, you know, you've got, and that's, this continues to be an expensive business to operate. So you've got to continue to push, um, making sure that we get paid for all the service that we provide. You know, I think maybe the, the rates of change that we've seen over the last few years, it slows perhaps, but I, you know, I think the position that we're in right now around what we're doing for the customer that is differentiated. And if I look across the landscape of what, you know, what, other services being provided, what that pricing looks like. I mean, I think that there's an opportunity for us to continue to grow our business and develop the margin profile that this business deserves.
spk09: Sounds good. Thanks for all the help.
spk10: Our next question comes from Scott Group with Wolf Research.
spk02: Hey, thanks. Morning, guys. A few things. Can you just, on the January tenants, do you have a sense on the sequential December to January and how that was trending?
spk11: Yeah, historically we've seen, you know, a little bit of a step up, call it one and a half to two percent historically as you move into January. You know, that's always influenced by, you know, the weather you're exiting and what you're facing. But the step up was, you know, closer to five and a half to six percent this year. But like Fritz said, you know, that last week of December, man, it was tough with that cold front that went across the country, and the pickups were really soft. So some of that could have been just catch-up, like Fritz said, from customers. But, you know, it felt better, given the first two weeks of January felt a lot better than the last two weeks of December, for sure.
spk02: Okay, good. And then, Doug, any help with how to think? I know you don't give us inter-quarter discussions, yield updates, but just directionally how to think about the yield trends, you know, gross to fuel, net to fuel, however you want to think about it, and Q1, the year, however you're thinking about it.
spk11: Yeah, I mean, you know, like Chris said, I mean, we've seen a lot of GRI announcements, and our GRI went out this past Monday. It's, like I said, on an average of 6.5%, and In a softer volume environment, you probably end up making some concessions in some lanes, for example, or with some really good operating customers. Historically, we say we hold on to about 80% of our GRI in terms of the yield that we capture. In a softer volume environment, maybe it's a little less than that. I saw a couple of GRIs. I think on average, the GRIs even though they're solidly, you know, mid-single digits, you know, there's a couple that are lower than what we've seen over the last couple of years. So that's, I think that's just in line with probably what the shipper's expectations are. But, you know, it's still a positive environment. I mean, the 7.4% contractual yield, I mean, as you know, I mean, it's just kind of a forward-looking indicator to us of what the shipper's expecting. And it's coming off the heels of several quarters of double-digit, you know, rate increases. So we're lapping some of that. So, I'd say pricing, you know, in January was still positive, and I just think the expectation should be that you won't get price at the same rate when volumes are running down like they're running.
spk02: Right. And then just last thing, obviously, based on sequential margin being flat, right, so margins down, you know, a point, point and a half year over year, do you think you have the potential to improve margin over the course of the full year?
spk11: You know, we go back and look at some examples. So, I mean, I You know, I guess from a very high level, it's going to depend on really where this economy goes and what volumes look like. But, I mean, we've got examples in the past, you know, improving margins in a down year. I mean, if we go back to, you know, a couple of years, like 2014 into 15, you know, things were down in 15. Kind of energy rolled over. Our shipments and revenue were both down about 4% that year. you know, fuel expense was down a lot, so fuel, you know, fuel surcharge revenue would have been down, but that year was the year we actually improved our margins by 70 bps, and, you know, we look at the following year, and it was still a pretty sluggish environment. Fuel was down again. I think our revenue was flattish on down tonnage, and that year, you know, the OR went backwards a little bit, so there's a lot of moving pieces out there, but I think, you know, if If shipments are going to be down like they are kind of in January, if we had to run that through the full year, you know, we really got to hang on to this, you know, rate increases at this GRI level. And then I think we could hold on to margins. I think if volumes are going to run negative all year in this low to mid single-digit range, I think it would be hard to improve margins. But, again, you know, like Fritz mentioned in his opening comments, we've got 18 terminals open in the past couple of years. I mean, they were certainly – Although, you know, we're pleased with how they're doing. And as they mature, they do better every quarter. But those were a drag, you know, essentially on the overall OR we reported. So, again, while you're building out a network like this, which is something we're going to have to manage through. But I think it would be reasonable to think ORs within 100 basis points plus or minus of what we just exited would be reasonable.
spk08: Thank you, guys. Appreciate the time.
spk10: Our next question comes from Chris Weatherby with Citigroup.
spk05: Hey, thanks. Good morning. Maybe picking up on the cost side, so kind of wanted to get a sense of what you think your cost inflation is running and then maybe a little bit about how you think you're going to manage headcount, assuming that we still see a little bit of sluggishness and tons of leads for the first part of the year.
spk11: Well, Matt, I think Chris covered it pretty well. I mean, I can give you an idea of how we manage it. I mean, if I think of just sequentially Q3 into Q4, Our shipments per day were down almost 7%, right? And it was accelerating there at the end as I stepped through the months. But shipments per day down about 7%. So, you know, you go to work on the things you can control out in the network. And our dock hours per day, for example, Q3 into Q4, we're down 10%. You know, our city hours, Q3 into Q4, as we're managing down costs to adjust to these declining volumes, our city hours per day. We're down about 5% Q3 to Q4. So those are the levers we'll keep to work on. Like Fritz said, I think we're in a position, given where we exited December, that our capacity in terms of labor and all feels pretty good for where we sit today. And we've brought a lot of it that we could in-house to make sure we keep our drivers as busy as we can and keep that valuable resource because our outlook is still you know, a little bit cloudy. I mean, there's people starting to talk themselves into the idea that we're definitely going to have a soft landing now. So we want to be mindful that it's very fluid, and we don't want to be scrambling to find these valuable, you know, employee resources when our customers need us. So it's a tightrope, but we feel pretty good about how we've positioned ourselves this quarter.
spk06: And cost inflation, as you think about the beginning of 2023, is it mid-single digits or so?
spk11: I mean, it's hard to give you just kind of an average number, right? If I think about it on the wage side, you're still going to have some wage inflation there. This past year, our average wage increase was about 4.3%, so I think something in that range still kind of makes sense unless things really fall apart in the jobs economy. You know, you move down the line, depreciation was up 10% in 2022, and it's going to be up again. I mean, we're going to invest in the business again this year. Like Fritz said, we've got terminals to open. We're We're going to invest in the fleet, work on, you know, fleet age, which helps our maintenance costs. So those are a couple big buckets. But then when you get below that, I mean, it's tough to say because, you know, PT can be down a lot. That's a cost bucket, but it's down because we're moving some of those costs to other buckets. But I think load it to mid-single digit maybe if I had to think about an average cost inflation.
spk08: That's helpful. Appreciate it, guys. Thank you.
spk10: Our next question comes from John Chappell with Evercore ISI.
spk04: Thank you. Good morning. Doug, you just touched on PT. I wanted to ask you about that. I mean, it's been running, you know, much higher than historical levels up until this fourth quarter, and you pulled it down pretty meaningfully as a percentage of revenue. How much of that is, I mean, obviously there's a shipment component to it, but do you view that as kind of structural? Sounds like you're going to run, you know, headcount thoughtfully throughout a cycle. So, PP seems to be a quicker lever. Is this step down, you know, kind of more consistent of the levels we should think about in the type of volume environment you laid out for 23?
spk11: I mean, if I think, I mean, given the expansion efforts we have underway to grow the network, you know, to be more comparable to a network of some of our national peers, you know, we're going to continue to need, you know, PT as we come out of whatever slowdown we're in here. We're going to continue to need PT, and we use it, you know, very effectively. If I think back to pre-2017, before we were in this expansion mode, as a percentage of miles, I mean, we run in that 12, 14 percent range, you know, pretty regularly. And so, you know, if we take it below that in this down time, it's because we want to use our drivers and hang on to them. But I don't think that structurally i mean we've ripped a lot of it out but when business comes back we're going to need it we're going to use it effectively and i don't think this is kind of a run rate from here if the account economy bounces back we'll we'll use it we'll we'll use more rail right i mean if we can get it we'll we'll use over the road uh truck pt because those rates are probably going to be pretty favorable when things come back because they're kind of resetting now so um you know we brought miles down quite a bit but you know sometimes when we do it it's We're doing it to preserve hours and miles for our drivers, but it's not all that effective in some lanes. If I was running PT into a backhaul market, I'm running those miles with my own driver now and coming back less efficient because maybe I'm not full. But I'm doing that because I want to keep those drivers, keep them busy where I can. You know, you follow us for a while. PT is not a negative for us. It's just variable, and we like to use it when it's effective for us.
spk18: Yeah, it's part of our total line haul cost investment. So, you know, at any given point in time, we're going to make a decision around what's cost optimal around the options that we have available, be it rail, truck, or internal fleet. So it's... You know, it will flex and change over time as we meet service obligations. The first step we have in that process is that whatever choice we make has to be about supporting what the customer requires, and then we cost optimize from there.
spk04: That's good to have that flexibility in this all the time. Fritz, big picture one for you quickly. It feels like the consumer narrative is pretty binary right now, but maybe getting a bit more optimistic. The industrial narrative seems a lot more negative, and you carry more industrial freight. So, you know, the last couple months of data you provided notwithstanding, what are you thinking or what are your customers saying about the industrial outlook for this year?
spk18: You know, I think we read much the same thing that you do, and I think what you – I would say generally across the board it's pretty – it's tempered. I think it's critical for us to remain – keep that flexibility. and keep our network in a position that we can flex as we need to. You know, if the consumer is a bit stronger, certainly we have some elements of our business that would be more consumer-tied or others that maybe are more industrial-tied. So we want to be able to handle both or be able to deal both and be in a position that we can flex but most significantly meet those service requirements. That's why we've kind of managed the way we have. We really focused our cost optimization efforts around reducing hours and maintaining flexibility and availability in our workforce. So far, that's been successful, and I think we've got to continue to focus on, you know, matching those service expectations and balancing that against, you know, maximizing or best utilizing our driver fleet.
spk08: Thanks a lot, Chris.
spk09: Thanks, Doug.
spk10: Our next question comes from Amit Mehrotra with Deutsche Bank.
spk20: Thanks, operator. Hi, Fritz. Hi, Doug. Good morning. I just wanted to follow up on the margin expectation for the first quarter. I guess just given how weak November was or counter-seasonal November was and the relative snapback in January, I would just think there may be an opportunity to see some counter-seasonal OR improvement. I don't know if you vehemently disagree with that or if there's something in the cost structure that evolved that I'm missing, but it just seems like 4Q was just a lot worse because of the November fall off, and that's counter-seasonal, and maybe you get some of that back in the first quarter.
spk18: You know, I bet we could, and I could also paint a picture that we could go the other way. I think the challenge you have with forecasting and really considering sort of March quarter, first quarter result is that you know, January and February historically, and you go back in time for us, have been, you know, kind of up and down. It could be everything from economic to, you know, weather related, all those sorts of things. So it's tough to draw a correlation, you know, to say that, hey, this could bounce back. We know that March is the most important month of the quarter. But what I like the position that we're in right now, because we've worked extensively, you know, November, December into the present time and kind of resetting our profile to be able to be in a position that we're a little bit more cost optimal as compared to what we saw as tonnage declined in November and December. We feel a little better that kind of where our footing is now, what our productivity looks like, and most significantly what our service level is and our ability to restore service as we move through even the last week of you know, weather challenges we've had. That's part of the game right now. I think the path to outperforming Q1 is we get a favorable operating environment in terms of everything from weather and such. And I think, you know, we can perform well through here. You know, we've kind of given our thoughts around the margin profile. That's kind of where we're – as we look at history, that feels like kind of where we would be. Certainly is there a path to better? Sure. Sure.
spk20: Okay. Yeah, that's helpful. And maybe one more, maybe more important question than like the near term stuff. So I'm just curious how much of the, you know, productive labor force did you guys lose through attrition as you guys cut the hours across the board? And really what I'm trying to get a sense of the next kind of most important thing is how carriers were able to bounce back efficiently and with fluidity as volumes come back in late February, March, hopefully. And I just want to know, are you properly resourced with respect to dock workers and drivers to kind of meet that opportunity, just given kind of the big cut to hours and maybe the attrition that drove?
spk18: Yeah, the attrition has been, we've seen a bit of it here in the last, you know, few weeks, months. And that's been relatively small. We have focused very diligently as we've reduced hours. It's important to us that we balance that across our workforce. As we've seen some attrition, we haven't replaced heads. So that allows you to better balance across the remaining head count. So we feel like we're pretty well positioned that we can flex from here, flex up from here. And some of the things that we have done around workforce you know as we've had doc part-time doc staff have you know elected to move on to other things you know we've we've used our supervisor ranks to work on the dock and in some cases we've used some of our city drivers all those are ways for us to keep that all-important connection with those critical employees so that when time comes and i think it'll come that we can flex out of this i think we'll be in a good good position to restore and continue to grow yeah okay
spk08: Thank you. Nice job to you and the team. Appreciate it.
spk10: Our next question comes from Jack Atkins with Stevens.
spk03: Okay, great. Good morning, and thanks for taking my questions. So I guess, you know, Doug, if we go back to something you mentioned earlier, sort of we're talking ourselves into this idea of a soft landing. I don't know if that's right or not, but I would just sort of be curious if you and Fritz could maybe comment a bit on what your customers are telling you about
spk11: Maybe how they're expecting their business trends to kind of progress through the year just any sort of color or context around that Well, I mean we it's hard for us to pull in an anecdote or here there and try to draw a conclusion I mean, we've got a very diverse customer mix, you know, we've got 60 65 percent industrial exposure But but not any one customer makes up more than three three and a half percent of our revenue so I'd hate to take one anecdote and try to draw a conclusion from that and I mean, we can look at the same data you all are looking at, and ISM wasn't all that, you know, it wasn't all that favorable in January. But, you know, just thinking about, you know, what's going on in the jobs market and with some of the other economic data, you know, it doesn't seem as bearish as it was late last year in terms of the outlook. But, you know, for us, I think, like Fritz has keyed on, I mean, you know, I think we've gotten a pretty good position from a cost standpoint with the volumes we're currently seeing. You know, we've got the rate increase we've worked on and announced the GRI, and that's key to what we're doing because I think our service does, you know, put us in a position to go get pricing. And, you know, whatever goes on from here, I think we've got a pretty good relative value proposition and And if things are going to be down, maybe we'll find share opportunity. Maybe ours will be down a little bit less because we're in some newer markets. We've got good service. If our rate's attractive, even if we're all bumping rates up a little bit, maybe we offset it and we're down a little bit less. So, yeah, I don't think we've got a great view into what a general customer outlook is.
spk06: Okay.
spk11: We look at some of the shipper surveys that come out of you all, so, you know, the analyst ranks, so.
spk03: Okay. All right. Well, I appreciate that, and I appreciate just the intellectual honesty about that, and it's all good. So I guess maybe for my second question, I just would be curious, just following up on Amit's question earlier, which is a fair point, how are you guys thinking about latent capacity in the network today? If I recall, last time you updated us, it was about 20% or so. I know it's a hard number to really get to, but we've also seen tonnage come down a bit. it definitely feels like you're carrying extra costs for when things begin to recover to be prepared for that. But how are you thinking about where that number stands today, roughly?
spk18: Yeah, Jack, or Lisa, we've got, I think I'd expand that to, you know, 25 capacity, 25% kind of latent capacity. I think the one call-out that I'd point to, you know, we've mentioned that we've opened 18 facilities in the last two years. And, you know, our focus there is, We're thrilled with the early success we've had there, but when you're making a 10-year investment, when we move or identify these facilities, we're thinking about them for 10 years. Those are all opportunities for us, and we've got our sales force geared on that as an opportunity because that's capacity we can fill. I think we have a couple of pinch point investments in the network this year where we're you know, adding some break capacity. So, you know, I, we still have some of the challenges we had before in terms of, you know, we have a range, we've got facilities that have got tons of capacity and others that, you know, we've still got to make some investments. So I, what I really like about it is that we've, as we look across our, you know, network and footprint, we've got a pretty consistent service offering across the board. So for us to to match a customer need and grow is really exciting to us. And I think that flexibility and the ability to repeat the service is going to be key.
spk09: Okay, Brent. Thanks again for the time. Really appreciate it.
spk10: Our next question comes from Jordan Alliger with Goldman Sachs.
spk13: Yeah, I guess following on some color around the newer terminals that Doug had mentioned, et cetera, you know, as being a slight drag. I'm sort of curious, the last 12 or 18 that you opened, when you do open them, is the gap between existing and new narrowed versus prior experience? Or, you know, do you get up to profitability in a quicker fashion? Just sort of curious. Thanks.
spk18: Oh, absolutely. You get back to quicker to sort of company average OR for sure. When we opened The Northeast, you know, it took a little bit of time. Now, we're thrilled with where it is right now, but, you know, it took some time to scale those just simply because we had to build the infrastructure around that. The last 18 are more, I would characterize as sort of fill-in, and these are ones that, you know, maybe you're taking a little bit of STEM time out, so you've got a cost advantage you're taking advantage of, or, frankly, you're finding a new customer or better serving the customer. So those These I would expect that we would be able to get to company averages much more quickly. Now, I will point out that the challenge with that is that when you experience what we did in the fourth quarter about the volume 10 trends that Doug described, that impacts a facility that's in its infancy. So they become a bit of a drag in that because you experience that across the board, those sorts of trends.
spk08: Great. Thank you.
spk10: Our next question comes from Tom Waduiz with UBS.
spk12: Yeah, good morning. I wanted to see if you could, I think, offer some thoughts on pricing. I mean, it seems like, you know, there was debate over the last year about, you know, is LTL pricing going to hold or not? And, you know, I think generally people are of the mindset it will. I think the results are pretty consistent with that. But You know, are you seeing anything in competitor behavior that causes you to be kind of more or less optimistic? I mean, I guess the idea that you said of getting less price in a weaker tonnage environment totally makes sense, but anything on kind of competitive dynamic and conviction on the favorable, you know, pricing dynamic for LTL?
spk18: Yeah, I don't see any changes there. I mean, certainly the customer and the environment is is, Tom, as you just characterized, a bit softer, right? So that it's not what we saw a few months ago or, you know, a year ago. But what I tell you, I look at specifically at SCIA, and I look at kind of where we stack up against the competition, and I look at the service that we're providing, which is, in many cases, better. I think there's an opportunity there for us, and, you know, The investments that we've made, the facilities and expansion, it deserves that. So I feel pretty good about our position. The rate of growth may not be the same, but the opportunity remains. And I think the environment underlying everybody still has inflationary costs.
spk09: So I think that that's a critical part of the industry and kind of what we see.
spk12: Right. Okay. So it sounds like a lot of confidence in the competitive dynamic. I guess for the second question, I think you talked a little bit about industrial earlier. Maybe parse it a little bit further. Did you see a difference? Have you seen a difference over the last several months in terms of how much weakness is being realized with industrial customers versus retail customers? And I think the idea is just that if you have inventory reduction with retail customers, maybe that plays out through 1Q and they improve. but it's just a little less clear on whether you've already seen, you know, weakness with industrial customers or whether that's still to come.
spk18: You know, I think, Tom, one of the things we're challenged with is that no one customer is greater than 4% of our revenue base. So it automatically is a pretty diverse base. And I would tell you what we've seen, the trends that we've seen, you know, it's been pretty much across the board. So I don't have a really good call out around you know, industrial retail there. And particularly, you know, in some cases, as you know, in this business, you know, as a customer's mix of business changes or their plans change, you know, they may, you know, choose alternate supply chains and things that we may lose or pick up business. So, it's tough to really for us to call a trend there. I would say that the trends that we've seen in our business have been really pretty much across the board. So, I don't have really good intel for you on the retail side or component or the industrial component.
spk12: But it sounds like you, I guess there's some information value, I think, in saying that you haven't seen a big difference between the two, right?
spk18: That's fair, but I would caution you by saying sometimes some of what we've seen is based on our own action because we're pretty deliberate around making sure we get the pricing piece right because our service levels are pretty critical.
spk08: Yeah. Right. Okay. Makes sense. Thank you for the time. Yep.
spk10: Our next question comes from Ken Hoekstra with Bank of America.
spk14: Hey, great. Good morning. And thanks for the time, Fritz and Doug. You know, going back to the real estate last quarter, Doug, I think you mentioned that you could slow things based on the flows, but given your opening five terminals, you know, how do you, is that in line with your target of 10 to 15 this year and, and, kind of your annual growth, or are you thinking about things slowing based on tonnage? I guess maybe just how do you think about that given your real estate projects?
spk18: So, Ken, the way I always jump in on that one, the five that we're opening, those are in our pipeline, and I tell you they're confirmed. You know, as we look out for the balance of the year, we're going to be opportunistic. We may add additional facilities down the road based on what we see in the macro environment. One of the great things about doing an organic expansion is you can accelerate or slow down as you need to. I think right now with kind of the tempered environment that we're in, we feel pretty good about these next five. There may be a few after that, but I'm not in a position I can speak to those yet. We know what they will be, but we may not, you know, open them this year. We could open them this year. It all depends on what the environment is. I think the opportunity that we have right now is the last 18 that we've opened. Let's continue to optimize those and add share in those markets, and then we'll take advantage of these. We've got a couple big ones coming up this quarter and next, which I think will be a nice add for us.
spk14: So, Fritz, it's not like you're saying, hey, we're opening five because we're seeing some opportunities. These are already in progress, and now we'll decelerate from here on and and maybe calm into the second half unless we see things improve. Is that a better way to look at it?
spk18: Yeah, exactly. You know what? If we feel better about the second half or more confident, I should say, we could add more. We could come back and say, hey, Ken, we're going to add five, six more. We could do that. But right now we like the next five, and we like the fact that we've got a lot of opportunity in the last 18.
spk14: So I know you don't give out the fuel expense, specifically. And one of the things that I think a lot of investors have been worried about was the amount of profits that were coming off of fuel surcharges. And it seems pretty thin this quarter, you know, with your fuel surcharge revenues up, call it 41 million year over year. And I know you don't break out the fuel category, but the whole category was up 37. So I guess your thoughts on the ability to sustain those revenues or that gap as fuel starts rolling over. I think any thoughts you can give us to calm some of those nerves out there that as fuel came down, you'd lose that profitability gap?
spk18: Well, I mean, the way I think the first thing I'd make sure we understand is that, you know, fuel and fuel surcharge in particular, important part of the cost structure of this business. So, you know, the fuel surcharge program is tied to kind of our base pricing. So that is kind of ongoing and we've continued to make pretty big investments in that. One thing I'd call your, make sure you think about as you study our financials is that You know, as we switch to change our mix in line haul from purchase transportation to, you know, internal fleet, the fuel cost ends up on our internal fuel line, right, so rather than on the PT line.
spk09: So, you know, that's part of what you see there is we're re-optimizing our line haul network.
spk08: Perfect. Hey, great. Thanks for the thought that you said to that.
spk10: Our next question comes from Ravi Shankar with Morgan Stanley.
spk15: Thanks, everyone. Just a couple of follow-ups from me on the end markets. One is, I know you've touched upon the volume outlook a few times, but just kind of at a high level, I think some of your peers, both the LTL and the TL side, have spoken about a potential spring inflection in the cycle cycle. Do you underwrite that view or are you saying that it's too uncertain to make that call?
spk18: You know, I think I can understand and where that might, you know, the thoughts around that. I think certainly there is some reason for optimism and the jobs number today was really good. So I think there's the potential for optimism there. I think as you, as we reset our business, we want to be in a position that, As the economy gets stronger, we want to be able to take advantage of that. So we're positioned for that. You know, I think there's definitely some possibility we could see some, you know, second half could be better. But, you know, at the same time, if there's other sort of macro shocks, that could take it in a different direction. But, you know, it seems like increasingly we're seeing a more, you know, kind of a little bit of more optimism in the back half of the year. So, you know, that would be good.
spk10: Got it.
spk15: And just on that note, I know you spoke about the industrial markets earlier, but I think you're a little bit unique in that you have a slightly higher energy market exposure than many of your peers. Given how volatile that has been in 21 and 22, is that a tougher comp for you this year, or does that not really matter?
spk18: It doesn't really matter. As you know, and follow us closely, as we've added the Northeast, that sort of energy exposure probably looks more like the rest of the LTL sort of sector, right? So our book of business is looking more and more similar to everybody else. So I don't have a call out there as to its influence on our results.
spk08: Thank you very much.
spk07: Our next question comes from Allison Poliniak with Wells Fargo.
spk00: Hi, good morning. Just keeping on that industrial side, a lot of our coverage in the industrial space is really talking about this recalibration year as we smooth down the backlogs that have extended here with all the supply chain issues. Is that driving any volatility in some of the trends that you're seeing from some of your industrial customers, or are you expecting that, just given some of that lumpiness potentially?
spk18: I don't have a great view on that, but we do see And I think this is an important part of our operating flexibility is that, you know, we do see continued kind of disruption with some of our customers around this order patterns, supply chains changing. You know, those are important parts of our ability to be flexible and match customer expectations. So I don't know that there's a particular vertical there, but it's, you know, we see that and have seen that over the last, you know, year or so where you do see some disruption and sort of month-to-month trading and changing in all parts of the business.
spk00: Got it. And then just, you know, going back to the facilities you had opened, you had talked about it being a drag to the OR. Does that flip now as you start to build out and leverage, or is just the volume moderation a little bit heavier this year than maybe you would have expected in terms of that kind of flipping from a drag to more of a tailwind for you?
spk18: I mean, I think the opportunity for us is that there's a potential tailwind there, right? You know, we have, what we're really, I think, have been successful is replicating that fantastic service that we're offering the customer across these new openings. As customers become familiar with us in those markets, we have the opportunity to, you know, kind of grow in those facilities. And it's a, I think it, you know, certainly could be something that would be beneficial to us in the balance of the year.
spk00: Great.
spk07: Thank you. Our next question comes from Ari Rosa with Credit Suisse.
spk17: Great. Thanks. So I wanted to ask Fritz and Doug, maybe you could give your thoughts on the ability to get to a sub-80 OR kind of over the longer term. I know you said kind of expectations for 23 probably within 100 basis points or so of of what we saw for 22. But, you know, is the sub-80 still kind of the long-term target and kind of what's your confidence level around that? And then should we also have an expectation that SIA can kind of be top quartile among peers in terms of where its OR lands in any given year?
spk18: I don't have a reason why not. I have to be honest with you. We are marching on to that. This is the environment that we're in right now is a little bit more challenging than it has been, but we don't see any reason why our Service, our quality can't be, it is in many cases becoming best in class or approaching that, and that deserves an appropriate return. And I think that operating in the mid-70s is our expectations, or perhaps lower. I mean, certainly the bar's been set, so we're going after it. I don't know why we wouldn't.
spk17: That's great. Certainly very encouraging to hear. And then just in terms of the five terminal expansions that you're looking at, maybe you could give a little color on what geographies those are focused on. Historically, you've spoken about kind of the benefits that you see in terms of increasing density in a particular geography. Maybe you could give some color on kind of what the expectations are for the benefit that you might get from that.
spk18: Yeah, listen, one we've talked about, if you follow this closely, we've talked about it's a testament to how challenging real estate is. but we've got a facility that will open in Northeast Atlanta. That'll give us three in this market. This is a growing metropolitan area. We have a challenge being able to provide the best in class service that we would expect in the Northeast part of Atlanta. We added one in Northwest Atlanta, I guess a year and a half ago and been thrilled with how that we've been able to service those customers and approach that market. We expect more of the same going up the 85 corridor. That's an important ad for us. I think it's going to be not only will we be able to do a great job for the customer there, we'll be able to recruit drivers in that market. We'll create flexibility and capacity in our legacy facility there. And, you know, we're going to say there's going to be some inefficiencies built into that. Just the fact of the matter that we can get to a customer without having to go through an hour and a half of Atlanta traffic is a big deal. And I think that... We're excited about that opening. It just can't happen fast enough.
spk16: That's great. Well, certainly good luck with the opening of those terminals, and we'll be watching closely. Thanks.
spk10: Our next question comes from Bruce Chan with Stiefel.
spk01: Hey, good morning, team. This is actually Andrew Cox on for Bruce. I appreciate the time. I just wanted to dive in a little bit. Yes, no problem. I wanted to dive in a little bit on, you know, I appreciate all the detail you guys have given on cost reductions and the natural attrition you guys have allowed to occur in response to slower volumes. But I kind of wanted to get a sense of your views on the other side of the equation that might be kind of backfilling a little bit of this excess capacity with maybe transactional shipments. You've talked about your shift to enforcing line haul and maybe having additional backhaul opportunities there. And you've now got 25% latent capacity and your costs are better aligned. And we've heard from this week that some of your peers may be taking part in this exercise. I just wanted to know your thoughts on backfilling capacity with maybe some transactional freight. Thanks.
spk18: Listen, we're all about finding customers that value our fantastic, what we see as very strong service propositions. So if there are opportunities for us to go sell in available capacity, we're on it. And in fact, we have several initiatives around that. But we're not in the game of leading with price. Frankly, that's not what is appropriate. What is appropriate is to find a customer that understands that, hey, you're going to get a great product from SIA and they're going to pay accordingly and that's going to fit. And maybe in some markets, there's an opportunity for us. But you won't see us participating in simply leading with price. That's not our game.
spk09: We'll find the customers, though, but that's certainly an opportunity as we build capacity.
spk08: Understood. Thanks for the detail, and congrats on the results.
spk10: Our final question comes from Jack Atkins with Stevens.
spk03: Okay, great. Thanks for the follow-up. Doug, I just wanted to circle back real quick to make sure everybody's on the same page on the operating ratio kind of thoughts for the first quarter. You know, if I heard you guys correctly, you're kind of talking about flat operating ratio quarter to quarter, sort of fourth quarter to first quarter, which would be in line with seasonality. Is that what you guys said, or did I misunderstand that?
spk11: Yeah, that's right. That's what we've seen historically, and then, you know, Fritz gave a lot of color on amidst question about, you know, could it be better than that? You know, potentially, but you hate to get out too far over your skis, you know, given, given, you know, the weather challenges that come up, um, you know, February a year ago, I think it was a pretty tough comp for us. So I think it's mid teens kind of shipment and tonnage growth last, uh, February. So, uh, we gotta get a clean run through there to, to think that, you know, we try to forecast something better. So yeah, flat out of Q4 into Q1 would make a lot of sense to us.
spk03: Okay. Okay. That's what I thought. I just wanted to clarify that.
spk08: Thank you very much. Thanks, Jack.
spk10: There are no further questions at this time. I now turn the call back over to Fritz Holgris.
spk18: Thank you for everyone who's called in to hear the latest update on this SIA performance. We're excited about the opportunities in front of us this coming year and look forward to providing an update in the next quarter. Thank you.
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