Saia Inc (SAIA) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Saia, Inc., third-quarter 2013 earnings results conference call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I will turn the conference over to Mr. Jim Darby. Please go ahead, sir.

Thank you, Debbie. Good morning. Welcome to Saia's third-quarter 2013 conference call. Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer, and me, Jim Darby. I am Vice President, Finance, and Chief Financial Officer.

Before we begin, you should know that during this call we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical fact are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ.

Now I would like to turn the call over to Rick O'Dell.

Well, good morning, and thank you for joining us to discuss Saia's third-quarter results. I'm pleased to report that Saia delivered a significant increase in earnings this quarter. Our success is the result of the hard work, talent, and dedication of every member of the Saia team. This strength is particularly evident when you consider that our improvement has been across the board and not in just in any one area.

Our metrics show that we are continuing to find ways to meet and exceed our customer's expectations in everything from customer service to technology; from claims to safety, and beyond. Let me start by reviewing some highlights from the quarter compared to the third quarter of last year. So we are all on the same page, all per-share data has been adjusted to reflect the Company's 3-for-2 stock split that took place in June of this year.

Revenue was $293 million, up 5.4%. Earnings per share were $0.51 versus $0.37. Our operating ratio was 92.5, down 1.2 points from 94.1. LTL tonnage per day decreased by 0.1%, and our LTL yield increased 3.8%.

Saia continues to advance its value proposition in the marketplace. Under the banner of Quality Matters, our signature quality initiative has led us to large investments in the quality of our products so that our customers have experienced an even more consistent superior customer service. These efforts have fueled another quarter of meaningful yield increase through strong value selling, which combined with efficiency initiatives, has led us to a 37% increase in our earnings per share.

As we previously discussed, in 2013 Saia announced a number of cost-savings initiatives that targeted $20 million of annual savings. Three quarters into the year we see that the results from these initiatives are providing a substantial offset to inflationary wage and cost pressures. And here are just a few highlights that contributed to the results this quarter.

We achieved a 98% on-time service consistently and reliably for the eighth quarter in a row. Our defects in pickup performance were decreased 32% making this one of the strongest metrics reported in our customer service index. Our fuel efficiency, supported by electronic on-board devices, improved by almost 7%. Over 81% of Saia drivers that are now meeting their progressive shifting targets, which is contributing to this success.

Our load average rose 4.4% in the third quarter compared to the same quarter of last year, which led directly to a record revenue per line-haul mile.

Just as an example, on flat tonnage our line-haul miles actually reduced by 3.9% compared to the same quarter last year. Saia was awarded first place for city drivers and third place for line drivers by the American Trucking Association, making this the third year in a row that we have earned high honors from the ATA. This does not mean that we are resting on our laurels as safety remains our number one priority. We are continuing our strong training programs and utilizing in-cab technology to support safe driving techniques.

The dimensioners purchased over the last two years continue to pay dividend. This technology allows us to provide quick, reliable, and accurate density measurements for individual shipments which aids in accurate pricing and costing of the freight that we are handling. We recently purchased an additional five dimensioners that will continue to enhance our capabilities in this area.

Our training does not stop with our drivers. During the quarter, we have enhanced our operational management and dock training as well. And these increased training investments, coupled with the infusion of new equipment in our system and dock-related technology, has resulted in further improvement in our cargo claims ratio.

As we move into the fourth quarter, we are increasing our capital expenditures to invest some additional monies in new equipment that supports our Quality Matters initiative and further improves our fuel economy.

The Quality Matters initiative remains the key building blocks for the culture of our Company. It permeates the actions that you see every day at Saia at every terminal, every shop, and every office facility across our network. With our improved operating results, Saia's balance sheet grows stronger. This provides us with the financial ability to make significant investments in our people, equipment, and technology that are making the enhancement of our value proposition possible.

Now that we have achieved a couple of quarters below our interim target of a sub-93 OR, we're making an incremental investment in our sales and marketing resources to spur growth in our existing geography. Probably the most meaningful investment is the 10% increase in our sales resources both management and field sales, which is already started and will be completed prior to the end of this year. These incremental resources will support our growth objectives in the future, which will come from our quality service offering, consistent cost execution, increased target marketing, and focus pricing discipline, as well as some further enhancements to our business mix management.

Now I'd like to turn the call over to Jim Darby.

Thanks, Rick, and good morning again, everyone.

As Rick mentioned, the third quarter 2013 earnings per share were $0.51 compared to $0.37 in the third quarter of 2012. For the quarter, revenues were $293 million with an operating income of $21.9 million. This compares to 2012 third-quarter revenue of $278 million and operating income of $16.4 million. Third-quarter 2013 did have one more work day than third-quarter 2012.

The LTL yield for third quarter 2013 increased by 3.8%, which primarily reflects the favorable impact of continued pricing actions. Continuing our trend for the past several quarters, yield showed steady improvement as we continued to achieve price increases. Our industrial engineering initiatives and operational effectiveness have maintained our high quality service while significantly enhancing our fuel utilization and reducing our reliance on purchased transportation.

The quarter, however, did include higher cost from wage and benefit increases necessary to compensate our workforce and meet customer requirements, as we implemented a 3% wage and salary increase Company-wide effective on July 1. This increase will add approximately $13 million of expense on annualized basis. We anticipate the impact of this wage increase to be partially offset by further productivity and efficiency gains.

While we have invested heavily in new tractors and have reduced the age of our fleets, maintenance costs were again impacted by more costly routine maintenance and higher parts costs. These factors increased maintenance expense by $1.3 million compared to the third quarter of 2012.

Depreciation and amortization ran $13.7 million during the quarter versus $12.3 million in the prior-year quarter due to our significant capital expenditures for tractors and trailers which are now in service.

Year to date, revenues were $859 million compared to $834 million in the prior-year period. In the first nine months of 2013, operating income was $59.7 million with net income of $35.6 million compared to operating income of $48.7 million with net income of $26.6 million in the prior-year period.

Earnings per share were $1.41 compared to $1.07 in the first nine months of 2012. Our effective tax rate was 36.3% for the third quarter 2013. For modeling purposes, we expect our effective tax rate to be approximately 37.5% for the full year of 2013. This rate excludes the impact of the tax credits recorded during the first quarter of 2013 that were retroactive to 2012.

At September 30, 2013, total debt was $91.5 million, net of the Company's $4.1 million cash balance. Net debt to total capital was 22.9%. This compares to total debt of $81.2 million and net debt to total capital of 24.5% at September 30, 2012.

Net capital expenditures for the first nine months of 2013 were $97.7 million. This compares to $79.3 million of net capital expenditures during the same period in 2012. The Company is now planning net capital expenditures in 2013 of approximately $115 million. This level reflects the purchase of replacement tractors and trailers and the Company's continued investment in technology. The increased spending in 2013 is primarily for purchase of replacement tractors, which will reduce the age of fleet and allow us to take advantage of pricing and tax benefit while gaining the operational efficiencies of the newer units.

Now I'd like to turn the call back to Rick.

Thank you, Jim. The third quarter finished with improved margin and profit progress achieved through solid execution across Saia's network. I believe that our ongoing investments in technology and quality have set the stage for us to build on these demonstrated results. We remain committed to our core strategies of improving yield, enhancing customer satisfaction, building density, and reducing costs through engineered process improvements and continuous employee training. This strategy provides the base for long-term profitable growth and increase of shareholder and customer value going forward.

With these comments, we're now ready to answer your questions. Operator.

(Operator Instructions) Brad Delco, Stephens.

Rick, I wanted to talk a little bit about the investment you discussed on the sales resources. Can you give us some color as to -- is that in any specific geography? And how long do you think it low take for this investment to help drive some top-line or some tonnage growth in the network?

Sure. Well normally, your sales lead time if you add resources is probably in the 90 days to six-month time period. But we would expect it to have certainly a positive impact as we go into 2014. And our process for looking at it was really benchmarking what our current staffing looks like in certain regions compared to what the market potential is as well as the number of sales resources that our competitors have in those markets to make sure we weren't being outgunned. And it is fairly spread across our network, although it probably would not surprise you, right, in some of the areas where we have less market penetration, which would be some of our more recently expanded geographies, if you can call 2006 recent, I guess, right?

In some of those areas, we were probably outgunned a little bit more than we are in, let's say, Texas where we have been as long and where we have such a significant share. So it's probably more in some of the expanded geographies than others. And then I think we're also adding to our management to support those incremental sales resources so that we can make sure we get the benefit out of that.

Got you. And then Jim, this question may be for you. It may pertain to Rick's comments, but looking at the SG&A line or salaries, wages, and benefits, we expected some increases because of the wage increases you put forth. How much in terms of dollars was that year over year? And what kind of costs were there in the current quarter related to this additional management and/or sales resource investment?

In the third quarter, really not much of anything related to the new sales resources. That is really going to come on in fourth quarter.

In terms of the wage increase that we gave which is right at the beginning of the quarter, we said that it'll have about a 12-month run rate of about $13 million. So I would expect that we saw about $3 million worth of impact in the third quarter year over year from that.

We would have also had higher health plan costs because healthcare costs just continue to go up. And it was in line with what we expected, but in that line, I think our health plan year-over-year went up about $2 million, $2.3 million.

Okay, that is good color. And finally, I know you guys don't give guidance -- I hate leading a question with that, but the investments in the fleets, sounds like it's mostly for replacement. That should continue to drive some productivity on fuel economy. When you look out to 2014, you guys identified $20 million of productivity savings this year. Is it out of the question to be thinking about you guys targeting something similar next year? And if so, what areas in addition to what you targeted this year are there for you guys to get more productivity?

Obviously, there's always opportunities to improve. And as you guys are aware, every year we set some specific goals and some plans in place and work on those things specifically. I would tell you obviously we go through our planning process fairly early in. We have been through the targets. We had significant improvements in a couple of buckets, specifically on the fuel efficiency and the line-haul expense this year, which had material contributions to allow us to get those $20 million numbers. I guess what I would tell you is the initiatives will be a little bit more spread out next year cost some different areas. And I don't have as many large buckets like that, so it probably would be less than that. But it would not be less than $10 million; it's probably the more in the $10 million to $15 million range for improvement opportunities. And what I would tell you I think as we approach this sub-93 operating ratio to be honest with you, I didn't really want to grow business at a 95 OR because the return on investment and return on capital -- it didn't make sense, right? But you start getting down around where we are operating today, and we have double-digit after-tax return on capital. And we are interested in growing the business for the right opportunities. And I think you will see going forward our earnings growth will come from a combination of margin improvement and top-line revenue growth. And that is what we're focused on as we head into next year.

Rick, that is great color. Appreciate the time, guys, and I'll get back in queue.

Jason Seidl, Cowen and Company.

Just a quick question for you. It is a bigger picture one, stepping back. The LTL industry has maintained some terrific pricing discipline and what I would consider sort of a lackluster economic environment. Do you see anything changing that as more people start improving their margins like you do and trying to grow their business, trying to grow their fleet? I guess what I am asking is what gives you the confidence that the industry can maintain its discipline heading into 2014 and beyond?

While the returns have improved, they are not fantastic or anything. And I think you have to look at how much new equipment and technology and some of the requirements we have in our industry cost. And it doesn't make sense to buy business. I think that we've seen that. That has been experienced. And to be honest with you, as I said on the last call, I expected our tonnage to turn positive this quarter. And we had one positive month and two negative months to be basically flat to slightly negative for the quarter.

So I think the market didn't develop quite as favorably as we would have thought. But we are maintaining our pricing discipline, and some of the most, I would tell you, some of the most price-sensitive accounts that are very immediate in terms of price and volume. For instance, the transactional 3PLs. We are down with them because they took modest price increases, and that business is transactional. And we didn't -- we lost some share in the market where those guys are taking some share.

So it's just -- to me, it's the right thing to do, and you just have to be disciplined and be confident in your ability to manage costs and manage as you go forward at the same time. I am confident there opportunities for us to gain share with our value proposition, particularly in some of the markets where we don't have that high of a market penetration.

Okay. Now in terms of the businesses you do with some of the third-party brokers, what percent of that business is it of yours right now? And how do you view that going into the future?

Obviously, it is a growing trend in the industry. It has been. It is here to stay. You have to view it as, here is a group of people that are rolling up small accounts into more national account pricing. And you just have to maintain your pricing discipline with it so that the business that you get, it works. And so you do a lot of analysis, do granular analysis on the business you are getting and how it operates and what you are doing. And it is how you have to manage that segment of your business.

Today for us, that's probably about 20% of our business, and some of that, it's probably as much as 25% if you consider some of the 3PLs that do more customer-specific pricing. So they may be negotiating paying the bill but they are not reselling your price. They are putting your business out for bid, facilitating a bid and a payment process.

Do you see that expanding, Rick? Or do you think that is going to hover right around the 20% level?

It depends how rational the pricing is with that.

And talk to me --

I mean if the pricing stays --.

Talk to me a little bit about --.

If the business operates well then we're certainly interested in going that segment. If cutting my rates were a requirement to grow 3PL business, I don't have -- there's not enough margin in that for me to be able to do that. So if the 3PLs can grow that business at rates that produce well for me, then I am interested in partnering with them and growing that business. If they require me to lose money on it for them to make money on it and grow, then I'm not interested in participating.

All right. That makes sense.

Talk to me about your own base pricing for your accounts. What are you guys signing contractual business at here as we sit here in Q4?

It is in the 3% to 4% range, probably a little bit closer to the 3%. We were up 3.8% in the quarter. Fuel was actually down a little bit on a comparative percentage basis. So we were up a little over 4% in yields. And with us increasing length of haul and a little bit of a decline in weight per shipment, our yield adjusted for mix is up a little over 3%. And that is pretty similar to what we're seeing from a contract renewal standpoint. So it seems to be -- it is continuing to be a reasonable market. And obviously, I think that is one reason too why I think we have a good opportunity with a lot of our business mix management and revenue management and adjusting accounts to where they operate fairly well. Now there's an opportunity for us to stay in a fairly static environment with our existing customer base, which should minimize churn in the investments in sales resources, sales and marketing resources that we're working on, should allow us to generate some positive tonnage comps.

Okay, great. One quick question for Jim and I'll turn it over to the next guy here. Jim, obviously, your net capital spending, it's the most you've had in your Company's history. What does that tell us for 2014? I'm assuming, at least directionally, probably down.

That is correct, Jason. We are really pulling forward some of our tractor purchases from 2014 into the fourth quarter of 2013. So as we float that up by about $20 million, you would expect overall -- now we haven't announced 2014 CapEx yet but you would expect it to go down because we're frontloading it into 2013.

So it is, so think of it --

Think of it --

I was just going to say, the way to look at that, the units are going to come in in December instead of January and February, really. And that's what our production slots are coming into the organization. So, it's not going to have a big impact on the fourth quarter from a depreciation standpoint. Have some impact in the first quarter, and then, obviously, we get off to a good jumpstart from a fuel efficiency perspective as well as it should have some contribution to maintenance savings in 2014. Really just an acceleration by a month to make sure we get the tax benefits as well as to get to some of the other savings and efficiency opportunities we're seeing from the new units.

Okay, makes sense to me. Gentlemen, thank you so much for the time. I really appreciate it.

William Greene, Morgan Stanley.

Rick and Jim, we've had some pretty big improvements given all of the efficiency gains you been able to get. Can you talk about some of the puts and takes in fourth quarter as we look at the normal sequential change that we have to keep in mind for modeling purposes? I just don't know how to think about some of the sequential change in margin going to the fourth quarter.

This is Rick. So third to fourth historically is about 2 operating points worth particularly because the work days, all the holidays, and then December is not a very good month from a volume perspective. What I would say is given the investments and incremental sales resources that we're making as well as some self-insurance unfavorable volatility that we have experienced, it would probably be a little bit worse than that this year.

Okay, fair enough. As a second question, I'm curious if you can talk a little bit longer term about where you go. Obviously you mentioned when you get to the 93 OR you look at potential expansionary plans whether that is building new terminals or maybe even an acquisition. But is that required for you to continue to improve the margin? Or do you feel like the plan you are on right now is enough that this keeps going along until you see the right opportunity? How do you think about measuring those two and playing them off one another?

Yes, sure. That is the way that we look at it. In other words, we don't think we have to expand our footprint necessarily to continue to drive margin improvement. We continue to see opportunities within our existing geography, and, again, the investment in sales resources is one way to focus that as well as some of the continued engineered process improvements that we've targeted. But it's not mutually exclusive for us to look at opportunities. We looked at a couple of opportunities this past quarter and decided to pass on both of those. Again, we're not going to reach for something that doesn't make sense. I think you have to have the right opportunity.

And I would also comment that the timing can be important on that to in terms of you don't want to do that right ahead of a downturn or when the market is real sluggish. If you get some rising tide in the economy, then those things tend to go better based on my historical experience.

We're not in a rush to do it. We'll do a careful analysis and make the right decisions. And I think we have that both in our LTL segment and then, as I think I've commented in the past, some of these non-asset related businesses if you buy them small and pay a reasonable multiple and are able to bring some sales and branding and structure to those to facilitate some growth, can provide some good margins over a period of time as well. So, both of those things are certainly on the table for the future.

Yes. Just as a quick follow-up, though, when you do some benchmarking against some of the other carriers, do you feel like you can't get to industry-leading without a much bigger footprint? Or do you feel like that's not really a constraint?

I don't think it is necessarily a constraint. One thing you have just from an LTL network management is you always have an end of your network. And generally just because the middle has more flows in both ways et cetera, if your footprint is a little bit bigger, you have more middle and fewer end. So, I mean from that perspective it could potentially have some difference but my analysis to the benchmark performer out there shows that we have opportunities that aren't necessarily related to that constraint.

In other words, if there is a 8 OR point differential; the network is an 8 OR points. So there's still plenty of opportunities for us to execute better from a market share, operations, and business mix management, revenue management objective, as well.

That's great. Very helpful. Thank you for the time.

Scott Group, Wolfe Research.

I missed the number, what percent are you growing the sales force?

10%.

And should we think about volume or tonnage on a linear basis with that? Is that a fair way to think about it in terms of what you are targeting?

I don't think so. Some territories are split, et cetera. I think we should generate some growth from it but I don't think -- I don't necessarily think it will be linear.

Okay. And how do you think about the incremental margin going forward as we have a bit more of a balance between tonnage and yield and productivity now?

Sure. The operation is executing very well but I think there is some excess capacity in our network. And I think that there's some further improvements in our operational execution that would benefit from some incremental tonnage. So, I think margins on incremental business could be in the 25% range with the fixed cost network that we have, somewhere between 20% and 30% so it's to say 25% for those purposes. And if you could grow tonnage 4% we could improve an OR point there. And then you have that as well as what happens with yield and your cost-savings offsets and inflationary pressures. So in network management business that we are in and business mix management, there's a lot of moving parts, but I think that is one way to look at the tonnage growth opportunities.

Right. So if we add up the pieces of it, if you can grow tonnage 4% and get a point of OR there and still get a little bit, call it, keeps that 3% pricing and get some productivity, it's reasonable to be thinking about 150-plus basis points of margin next year.

I really don't want to put a number on the table at this point that way. I would say -- I don't think we're going to go from our current flattish-type tonnage to 4% between now and January. It is going to be gradual curve and step up. But I believe there are opportunities that we can identify and achieve over time that are greater than one operating point. Let's just say that. If you look at versus the benchmark, there's 8 OR points target. We don't necessarily want to do it at 0.8 OR points at a time; that would be unfulfilling in my view, anyway.

Yes, I hear you. That's great. And just last thing, how much growth you think you can handle before we need to start thinking about growth CapEx, excluding acquisitions or regional expansion.

Probably 3% or so.

Okay. Great.

Somewhere in that 3% to 5%. Then we'd have -- when I say growth cap I am talking about revenue equipment. We have got plenty of capacity in our network. And we would expect if we were growing at 4% to have some pretty significant production improvements in both our line haul and our P&D network that wouldn't require 1-to-1 anyway.

So let's just say for argument's sake you are growing at 5%, you might need somewhere in the 2% to 3% more equipment and get 3% productivity improvement, let's say.

Yes, that makes sense. Thanks a lot, guys. Appreciate it.

David Ross, Stifel.

Rick, looking at the length of haul, hasn't changed much sequentially essentially flat from 2Q, but certainly a step up over last year. Can you talk about what is going on with the customer mix that might have driven that length of haul up from the 720s to the 740s?

Yes, some of it is, I would call it, strategic on our part. You have some very good -- in some of our regions, we have some very good regional players that are focused on that regional business with a lot of density and a good cost structure and they tend to want to handle that business at rates that don't appear to be compensatory to us with our cost structure and networks. So, we have elected in some cases to market outside of that more regional business, and it has led to some -- to leverage our network and handle business that operates well and we have seen some migration over time of our length of haul going up. I don't think there's anything wrong with that. As long as it operates well, it is fine.

As long as the operating ratio is going in the right direction.

Right. You like to have both. I really don't care what the length of haul is as long as the business operates well and the revenue per bill is compensatory, and we are over time building some tonnage and contributing to our fixed cost network with good, reasonable compensation. Then it that makes sense for us.

Exactly. But it wasn't a conscious effort to grow the synergy business or interregional lanes that you talked about a few years ago.

Probably was a little bit. Actually, that is one of the ways we're building density in those geographies. It is a conscious thing. We're showing our sales organization here is where lanes operate well for us and we can price aggressively and provide a good value proposition in these lanes. And if you are coming up against XYZ regional carrier who is doing dirt-cheap pricing, then sell outside of their coverage area. So, I don't know if you call that strategic or not, but it is smart.

Yes, no need to compete on the pallet rates, certainly.

Yes, right.

On the tonnage trend side, Jim, could you just talk about how we progressed through the quarter, July, August, September, and then where we are October year to date?

Sure, Dave. And this is LTL tonnage and this is through the quarter. And on a per-day basis for the quarter we were down 0.1% versus third quarter of last year. As we went through the quarter, in July we were down 0.4%. In August, we were up 1.1%. And then in September, we were disappointed, and we were actually down 1.2% on LTL tonnage versus September a year ago. So far month to date in October we're up 0.3%.

You'll be back in positive territory.

Yes.

And then any comment on regional strength or industry strength throughout your network in the quarter?

The upper Midwest was our strongest revenue and tonnage comparison, so that was the strongest area we had. Industry-wide we have such a diverse customer base, I wouldn't necessarily comment on any one industry other than I would tell you we're actually down a little bit as I have commented with some of the blanket 3PLs.

And then on the customer inventory levels, do they seem to be running in line or any of them getting too lean yet from your discussions?

We probably don't have any commentary that would be that meaningful for that.

Excellent. Thank you very much.

Thom Albrecht, BB&T.

Wanted to get a couple of numerical figures first and then ask a question beyond that. So Rick, what was your load factor in the quarter? And what was that approximately a year ago?

We commented it was up 4.4%. It was in the mid-28s. We were up over 1000 pounds.

All right. I missed the first 10 minutes. I had a call run over from 10 o'clock. Cargo claims, did you disclose that?

We did and we said it was improved. We have been sub-1% for quite some time now, probably five, six quarters in a row and we were at 0.85%.

Okay. So that's really probably another opportunity over 2 to 3 years to get down maybe 30-plus basis points I would think.

Here would be my comment with that. There is -- as you get a higher length of haul and a higher revenue per shipment, you basically handle the shipment almost the same number of times whether it goes 750 miles or 1000 miles. But your revenue per shipment is substantially higher. You can have the same damage rate, but if your revenue per bill is lower, your cargo claims ratio is going to be little bit higher. So part of that -- some of the people that report of lowest cargo claims ratios tend to have some of the higher average length of haul. So what it would tell you is while I certainly believe there opportunities for that, unless our length of haul materially goes up, it seems like it would be hard for us to get to 0.4 or 0.5. We think there are clearly reasons -- opportunities for improvement. But I would say given -- if you compare our cargo claims ratio to other companies that have a 740-mile length of haul, I would think we might be the benchmark.

I think that is a fair statement.

And then on the sales growth, that is all outside sales, so 10% would be what, 25 people? Are those correct assumptions?

That's about right.

And you'll continue to grow the inside sales effort or is that staffed at a level where you don't need to add to it right now?

We are growing at a little bit, the combination of the two. So if you look at the total headcount growth, it's probably in the 30 range. And again there some management, sales, field sales reps as well as some inside sales that we have in there.

Okay. And then maybe this was in the opening remarks, but you alluded to on the change from Q3 to Q4 in the OR, one of the negatives this year is the unfavorable development of insurance claims. So was that new accidents are just older claims adversely developing primarily?

You are talking about the 3Q to 4Q comment?

Yes, it seems like you were inferring that some of the insurance was going to continue to be a drag on into Q4.

Yes, what we said is we -- on the unfavorable side we have had a little bit of accident severity.

Yes, more recently you are talking about.

Correct. In other words, in the first month of the quarter. So -- actually year to date, we are very favorable. We expect to have a good year over all but we've already had a little bit of severity, not a catastrophic-type case but some severity in the quarter that will have some impact on our self-insurance.

Okay, that is helpful.

If other things are normal, it will probably be just a little bit worse.

And then two last questions. Jim, depreciation, will it grow from the third-quarter level?

Yes, it will. And overall, we've been all over the place with our projection for the year because initially our units, our tractors came in a little bit slower in the second and third quarter. And now with the initial units we are buying in fourth quarter, Thom, I think we're going to get the year at about a total of close to $52 million for depreciation.

Okay, that is helpful. And then lastly, Rick, back to you.

Always funny what you forget in the middle of a earnings season, but with EOBRs in that, a lot of the truckload guys are advanced. I know you've talked about that. Can you refresh my memory -- are you fully installed? And if you are, how much of a productivity tool does that become, especially for things like driver behavior?

Yes, two things. We are fully installed with electronic onboard devices. It has been very effective in assisting us with fuel management. We have miles per gallon by driver, by unit and even within the unit by driver like while they are in. We are measuring progressive shifting. And then there's a lot of recording technology in there in terms of examples would be hard braking incidents and fast acceleration, things like that would indicate behaviors that would not really support defensive driving.

You are also seeing things that are following too close. We actually have piloted some technology that records -- if you have a hard-breaking incident, it takes a video of the activity that took place in front of you. And it will email to us so we can review it and see whether our driver was doing inappropriate driving techniques or if obviously, if someone pulls in front of you and you had to make an evasive maneuver and back off quickly, then that is not-your-fault type scenario.

So we have reviewed that and actually we're going to install those units on -- retrofit some of our older units that are capable of that and install those on all the new units that we're using. And actually, it's interesting too because our drivers have been very supportive of that because they feel in many scenarios obviously they are doing defensive driving, and you can actually get a recording of the inappropriate behavior of the other driver.

Tools like that have been very, very good for us.

That is great to hear. Thank you again for all of that.

Art Hatfield, Raymond James.

This is Derek Rabe on for Art. Came onto the call little bit late so I do apologize if this was asked and answered. Pretty much all my questions have been. But I wanted to look at purchased transportation. We didn't see that come down sequentially as much as we expected, and I realize some of that is due to just growth across certain lanes but any additional color that you could provide on maybe line-haul optimization progress there. And then how quickly do you see getting above load average north of 29?

And then finally, how much rail are you currently using?

Well, the purchased transportation, Derek, if you go back and look at what we were accomplishing a year ago, we were showing year-over-year improvement reducing it by about 22% quarter over quarter. So we think we've hit a run rate which is reasonable. So that's why when you look at it, third versus third, it's very close. And as far as managing it well, we've actually reduce our purchase transportation miles slightly in the third quarter of this year. And the reason it ends up balancing out is we had a little bit of an increase in the cost per mile and purchased transportation.

Okay. Any color on the rail?

So just a brief comment is to reinforce that, we actually ran between purchase transportation and internal miles we ran 3.9% less miles on basically flat tonnage. So, we had some good efficiency and our line-haul network. The PT that we're using is primarily rail as well as effective what we call one-way go aways and head haul lanes which would save the empty miles. So again, we made a lots of optimization in that. We always continue to look for opportunities and reoptimize your network. But given any kind of a flat tonnage environment, I think we did a good job of managing the line-haul expense.

The PT spend that we have, more than 50% of our PT spend is rail. So again, that is effective, cost effective utilization that we have. Probably the spend on rail is between $20 million and $30 million. I don't have an exact number. I can get that to you off-line.

No, that is perfect color. I'm sorry?

And then the other comment, the other question you had I believe was, when do we expect to get over 29. And what I would tell you is part of that obviously it depends upon where you grow because out of our Breakbulk operations, as you would expect, we away north of 30,000 pounds out of Breakbulks. But in some of our smaller terminals, we have obviously much lower load average. So if we grow tonnage in the small terminals, then that rides for free to the brakes, and then the brakes would come at a higher average as we re-handle it and shift it on unless it were 100% backhaul.

Again, it is a moving dynamic. I guess what I would tell you is if we can grow tonnage in the 3% to 4% range, we would expect to see some further increase in our load average and line-haul efficiency and we wouldn't grow line miles at the same -- correlates with the tonnage. So that's our big opportunity is to grow 3% to 4% more tonnage and put another 500-, 600-pound average on the trailer.

Yes, that's great color. Appreciate the time, guys.

Robert Dunn, Sidoti.

I was wondering, did you mention what the revenue at Robart was for the quarter?

We didn't. It is about $1.3 million or so, I think. It is not much significant. We book a net of the purchase transportation for them.

And was that up from about $1 million last year?

I think it is up slightly. It is in line with what we had thought for the year.

It is up about 30%. What I would tell you is we think there are opportunities to grow that further, and as we look at next year, the margins are good on that business. As we approach next year, we would target some incremental growth from that business segment as well. It contributed in line with quite expectations from a earnings standpoint. I think we would have targeted some higher growth objectives in that segment as well.

On the equipment side, what is the average age of the tractors now? And is there a target age that you are going to try to get to with the CapEx programs?

Our tractor fleet is currently at 4.6 years. And again, what we look at is to -- we like to run our line-haul miles with units that are less than five years old. And we're pretty much there at this point. And the additional units we are buying in the fourth quarter really as we've talked a little bit, is that is really front ending the spend that we would have in 2014 to take advantage of the efficiencies, the fuel, and then also get some tax benefits from that.

Okay, great. And lastly, there was an article in the Journal today about natural gas engines and some increased testing among some of the truckers. Any thoughts on the attractiveness and/or the pace of adoption of that kind of technology?

We are at the early stages. Obviously, we are following what is going on in the industry. We have not made any acquisitions at this point in time. With current spreads, the technology looks fairly attractive, but it's a long payback and a huge upfront capital. And you're not sure the spreads will stay where they are today. So today, for a variety of reasons, it doesn't appear all that attractive. And if they can get the cost down, which comes from the fueling systems themselves, then it would become increasingly attractive.

But it is certainly something that we're watching, and we would expect in 2014 to get some experience with the group of those tractors as well. But not a big conversion, but for us to get in the game, get some experience.

Yes, so maybe a 5- or 10-year type of time horizon, not a 1- or 3-year time horizon.

Yes, and well, at least give you an example, one thing that makes sense is if you know your fuel savings are significant at today's spreads, we could buy a unit and put them in we call it a lion's share opportunity where it was running 500 miles in one 12-hour period and 600 miles and the other 12-hour period. And you are running 1100 miles a day. So then you could get -- you get your payback faster.

Whereas our average unit might only run 500 miles a day, then it puts you at a long-time payback for the fuel savings on the capital costs. So there are some opportunities that especially for us may work in certain situations. And we're going to evaluate that and get some experience with the technology this year.

Very interesting. Thanks a lot.

Jason Seidl, Cowen and company.

Quickly about the fourth quarter, working days in the quarter, how does that comp to last year?

Working days this year is 62. I don't recall the number from last year.

And Jim, just another nit picking modeling question, you said 37.5% for the full year for your tax rate excluding some of the benefits that you guys saw in 1Q. And dollar amount, what was the tax benefit in 1Q?

The tax benefit of the retroactive piece that was -- as you recall, we had to book it in the first quarter of this year but the retroactive piece for last year was about $1 million. And so the --

About $1 million.

And so the 37.5% excludes that $1 million. But the alternative fuel tax credits are also effective for this year, and that is factored in this 37.5%. But the retroactive --

Okay, so just back $1 million out in calculating it. Okay. Fantastic. I appreciate it, guys. Thank you.

Mr. O'Dell, with no other questions in queue, at this time I will turn it back to you for closing remarks.

Sure. Thank you for your continued interest in Saia. We appreciate it.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. Have a great rest of your day.