Saia Inc (SAIA) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the Saia, Inc. Second Quarter 2017 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the call over to your host, Mr. Doug Col. Please go ahead, sir.

Thank you, Paula. Good morning, everyone. This morning, hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer; and Fritz Holzgrefe, our VP and Chief Financial 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 the other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ.

Now I'm going to turn the call over to Rick.

Well, good morning, and thank you for joining us. This morning, we announced our second quarter 2017 financial results, with second quarter diluted earnings per share of $0.68 compared to $0.52 in the second quarter of last year. Second quarter results reflect strong volume growth, favorable pricing actions and solid execution across our network. I'm pleased that we were able to provide quality service in the quarter where industry volumes exceeded expectations and our own growth initiatives were certainly front and center.

Second quarter LTL revenue per hundredweight increased by 7.3%, making it the 28th consecutive quarter of year-over-year improvement in our LTL yield. The overall LTL pricing environment remains firm and is further evidenced by the number of GRI announcements by our competitors in the second quarter. Saia implemented a 4.9% general rate increase on July 17.

Also, in the second quarter, our average agreed-upon pricing with contractual customers increased by 8.2%. We renewed 364 contracts in the quarter compared to 317 renewed in the second quarter of 2016 as we're taking advantage of a favorable pricing environment and market conditions.

A few of the key operating highlights from the quarter are as follows: LTL shipments per workday rose 7.4%; LTL tonnage per workday rose 7.1%; LTL weight per shipment fell by 0.3% to 1,118 pounds but increased from the 1,101 pounds reported in the first quarter; length of haul of 806 miles was 2.5% longer than a year ago and was also up sequentially from the first quarter; revenue per LTL shipment rose by 7%; our cargo claims ratio of 0.67% improved from 0.75% in the second quarter of last year. The number of cargo claims filed per day is flat year-over-year despite the strong shipment growth in the second quarter; also, the average cost per claim was down 8.5% compared to last year, as our quality initiatives continue to progress and pay dividends.

Purchased transportation miles in the first quarter were 12.2% of total linehaul miles compared with 7.9% last year. Additional purchased transportation was needed in the quarter to handle volume growth that exceeded our expectations.

Fuel mileage improvements across our fleet continues to be a positive, as we averaged 6.9 miles per gallon in the second quarter compared to a year ago, which was 6.8.

With that, I'm going to go ahead and turn the call over to Fritz Holzgrefe to review our financial results in more detail.

Thanks, Rick, and good morning, everyone. Second quarter revenue of $358 million was 14.8% higher than a year ago, benefiting from positive shipments, tonnage and yield improvement, as Rick mentioned, and also from higher fuel surcharge revenue.

Second quarter operating income rose by 36.8% to $29.7 million compared to $21.7 million earned in the second quarter of 2016.

A few of the key expense items which impacted the second quarter results are as follows: selling, wages and benefits rose 11.6% to $196.4 million in the second quarter, reflecting the impact of an average wage increase of 3% last July; incremental labor related to year-over-year shipment growth in the quarter; and our expansion into new markets in Pennsylvania and New Jersey.

Fuel expense rose 13.7% over last year, offset by increased fuel surcharge revenue, which rose 32.4% from a year ago. Fuel surcharge revenue was 11.1% of revenue in the second quarter compared to 9.7% in the second quarter of last year.

Purchased transportation expense in the second quarter rose by 56.2% to $22.4 million and was 6.2% of revenue versus 4.6% of revenue last year.

Outside maintenance and parts expense rose 5.3% compared to the second quarter last year. Higher freight volumes made it necessary to run some older equipment to meet service needs and which would -- otherwise would have been disposed of. Claims and insurance expense in the second quarter decreased by 4.2% to $10.4 million compared to $10.9 million last year. Depreciation and amortization expense rose 12.4% to $22.2 million compared to $19.7 million in the prior year quarter and reflects our continued infrastructure and equipment investments. Our effective tax rate was 37.3% for the second quarter of 2017 compared to 35.2% in the second quarter of 2016. For the full year, we expect our tax rate will be approximately 36.5%.

At June 30, 2017, total debt was $148.4 million. Net debt to total capital was 22.3%. This compares to total debt of $139.4 million and net debt to total capital of 23.4% at June 30, 2016.

Net capital expenditures in the first half of 2017 were $155.1 million included equipment -- including equipment acquired with capital leases. This compares to $136.2 million of net capital expenditures in the first half of 2016. For the full year 2017, we expect these net capital expenditures will be approximately $220 million, including investments in terminal infrastructure improvements as well as continued investments made to lower the age of our tractor, trailer and forklift fleets.

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

Thanks. To summarize the year-to-date at Saia, I would say that much has been done and there's yet much to do. Saia customers have responded well to our northeastern service offering, and revenue so far has certainly exceeded our expectations. The openings were a small headwind to the second quarter operating earnings, but I'd say not as much as might have been expected due to strong initial volumes from our customers. We're currently in the process of renting our next location in Maryland to serve the markets of Baltimore and Washington, D.C., with an early fourth quarter opening. Also, we're in varying stages of completion with respect to securing real estate for our 4 to 5 planned service center openings in 2018. We're committed to our expansion plans but continue to work diligently on the pricing opportunity that we believe exists in our current business. Over the last several years, we've invested over $0.5 billion in property, equipment and technology and have raised the quality of our service to customers. To justify these investments, we have an obligation to make sure that we're handling freight at a price that allows us to earn an acceptable return on capital.

We're excited about our multiyear growth plan and the opportunity to serve both existing and new customers in our expanding geography. But are mindful of the fact that the expansion is a step-by-step process, and execution is key to our long-term success. Providing quality service for our customers puts us in a position to consider expanding, and we must maintain that as we seek to build our brand reputation in these new markets.

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

(Operator Instructions) Our first question will come from Brad Delco with Stephens.

Rick, I just want to see, is there any way you can put into context what type of growth or the -- what part of the tonnage growth you think was generated through the Northeast expansion?

We weren't going to kind of break that out specifically, but I guess, if you just want to talk neighborhood-ish kind of right out the gate, in May, the run rate was about in the 3% neighborhood from the starting standpoint, and it stepped up from there into June. And then obviously, we've commented on the TST Overland relationship, which was a meaningful step-up from the May into our June tonnage numbers as well.

Got you. So if I go back, I think April tonnage was up 4.1% and May was up 7.5%. Most of that was attributable to the Northeast expansion.

Yes. I mean, right out of the gate, we kind of started at about a 3% number, just to give you a baseline, I guess.

And then you made a comment about, I guess, the expansion hasn't been as dilutive to margin as you thought. And I think it was a surprise to many last quarter. You said sequentially your OR could improve in line with normal seasonality despite what you said would be a 50 basis point headwind because of this expansion. Could you put into context maybe, if it wasn't 50, was it negligible in terms of being a headwind? Or...

Yes. I mean, we basically arrived -- we had a lot of employees up there in April in training, but then the revenue came on stronger than we expected. I mean, maybe $1 million ballpark.

Okay. And then...

But so -- yes, obviously, it was probably half of what we would have guessed.

And then maybe my final question. I feel like most of these conference calls people just sound a little bit better about what they're seeing in the economy. Any general comments you can make that you're seeing in your business? Or maybe specifically, is energy or your Houston market seeing a good rebound?

Yes. Actually, the Houston market kind of led all of our regions, up over 20% in top line revenue. So that was a nice bounce back. And then the West, we're actually seeing the west -- the western half of the United States is -- is, for us, is growing more than the east.

Moving on. We'll go to Scott Group with Wolfe Research.

So just to follow up on the volume trends. I wasn't sure I understood. You're saying that in April of the -- you had 4 points of volume growth but 3 points of that was from the Northeast expansion. Is that what you're trying to say?

No.

So you're going -- meaning it...

So Northeast opened on the 1st of May. So that would have been -- that's where that started. So April would have been our historical footprint.

Okay, okay. Got it. And then, can you just give us the June tonnage number and July if -- I don't think I heard it.

Yes. So the July -- or sorry, June tonnage number was plus 9.2%. The June shipments number was plus 8.1%. And then month-to-date, so far, in July, where tonnage we see plus 4.3% and shipments, plus 4.1%. Now we have adjusted -- those figures were adjusted for the 3rd of July.

And I'll just comment on this. The reason for that kind of the step down versus where we were in June is heavily driven by the renewal of a number of our 3PL blanket pricing segment, and this segment has not been meaningfully adjusted for quite some time and had become our worst operating segment, behind both our field business and our national accounts. So effective around the 1st of July, we kind of did a reset for the whole group. And near term, it's -- we've seen a material reduction in this business, totaling about 4% of our company volumes. And history would say this business will return to us at a better pricing over time to our value proposition, and we just -- we're not going to handle business operating at 100 operating ratio, so we did a reset on this. It's a -- we think the market conditions are favorable for volume. Company had some really good growth opportunities, our field business is growing, and we decided to take this step to kind of -- at least temporarily, kind of adjust our business mix.

Got you. So with -- as you think about the third quarter losing some tonnage, I'm guessing -- but losing some lower-margin tonnage and then -- and less operating day, but maybe less terminal cost. I don't know. When you think about all the moving parts, how do you think about margins sequentially 2Q to 3Q?

Yes. It's a little crazy, like you said, with a lot of moving parts, but I'll try to step you through kind of our thoughts and our outlook. So if you normalize for safety, the third quarter is about 1 point worth, due primarily to the timing of Saia's annual wage increase, which is effective on July 1. This year, like you said, it's particularly odd because July 4 was in the middle of the week, so we had about half of normal day's revenue on July 3 and then there's 1 less workday in the quarter. So these 2 factors themselves would normally have an incrementally negative impact of approximately 2/3 of an operating point. And another negative factor is that the fuel dynamics are really running less favorable in the third quarter than we experienced in the second quarter, and that would have an impact of about 1/3 of an operating point. So in total, we kind of have an unusual set of circumstances that's about a 1 OR point headwind. However, given our business mix management, our yield initiatives, including the general rate increase and opportunities to continue to grow our Northeast revenue, we expect to be kind of more in line with historical trends from an OR perspective.

So just -- there's a lot there. So I just want to make sure I understood. So you're saying you're normally about 1 point worse. Given some headwinds you would have normally then expected to be 1 point worse than that? So call it, 2 points worse in the second quarter, but you think that, based on mix, you'll only be 1 point worse than the second quarter in line with normal?

Correct.

Okay. Great. And then just last question. So the 8% -- I think you said like 8% pricing renewals. That's obviously a major step up from the 4% to 5% you guys have been talking about. That's -- I'm guessing that's not a sustainable number, but what's driving that increase? And is there any way to just think about what percent of the business gets impacted by that 8% increase and if you're keeping that business?

Yes, so here's the thing. That number on the contract renewals is heavily influenced by a double-digit increase on the 3PL kind of blanket pricing segment, and that is about -- runs about 12% of our revenue. But as we commented, 4% of our revenue went away near term, correct? You understand? So it's really -- there is a pretty big change in our mix near term. But we also would expect over time and have seen historically that business comes back to us due to our value proposition.

Right. And you're basically saying that, that mix change adds about 1 point to margin?

Between that, the mix and our other yield initiatives and our -- the growth we expect to continue to step up in the Northeast expansion, right, which is at good incremental margins from a fully allocated basis, right? And there's a lot of kind of move -- there's a lot of moving parts that happened even through the last quarter and now into July, there's another step up with our business mix management.

And moving on, we'll go to Todd Fowler with KeyBanc Capital Markets.

Rick, I don't know if you want to -- if you care to share this, but based on all the moving parts that you're talking about, we've got the tonnage trends into July. Can you share maybe what a revenue per hundredweight trend looks like now with the pricing actions that you've taken?

It's -- okay, so adjusted for mix, meaning weight per shipment and length of haul, we were up over 4.5% in 2Q. And that number has stepped up by at least another 1% in our current run rate.

Okay. That helps. And then just as far as the volume that you're seeing into the Northeast, does it feel like your exit rate at the end of 2Q -- you're kind of getting the share that you'd expect to see? Or are you going to continue to grow in those terminals as you move through the third quarter? It sounds like in the fourth quarter is when we'll see the Maryland and the Washington, D.C. open. I'm just trying to get a sense of the incremental tonnage that you started to see in June. Is that kind of the runway where you'll be? Or will that continue to build as you move to the back half of the year?

No, it's still building. Like I would -- just said in order of magnitude, it's probably up another 0.5% from where it was just into the July numbers, that segment, right?

Okay. And then can you just talk maybe a little bit anecdotally about the response? I mean, is that -- and I think when you laid out the strategy, it was -- a lot of this was being driven by your existing customer base. Is that where most of the freight is coming from? Can you just share with us a little bit about -- it sounds like that you're in line, maybe a little bit ahead of your expectations, but the color behind why you're having that success is that the timing was very good with the economy. Is it better success in gaining some share? Maybe just a little bit of color around your experience now that you've got a couple of months underneath your belt.

Yes, okay. So the initial -- well, there's 2 kind of areas, right? So the outbound business from the Northeast with new salespeople and new customers generally up there, although obviously some of our existing customers that had locations up there moved some business to us. But the outbound side is about 1% of our revenue. And then the inbound side, from Saia's existing network going into the new markets, was around about 2% of our revenue, which primarily came from our smaller customers in the field segment. And you tend to see some of the national accounts take a little bit of a wait-and-see attitude on your opening, and they tend to be more contractual relationships that they put out for bid once a year, et cetera. And they're not going to go say, "oh, you're opening, so I'm going to leave my existing provider." So those opportunities are -- will continue to stage in as well as we'll continue to penetrate the field customers, and over time, the 3PLs more as well. So there's -- I think there's opportunities across our business segment, but initially, that kind of probably outlines, again, 2% growth on the inbound side from a revenue perspective and about 1% outbound, which I would call the new customer.

Okay, good. And then just the last one I had. Sticking with the Northeast. My understanding was, as you ramped up in those markets, you're going to make sure that the staffing levels were adequate. And so really, make sure that the service was in line with what your customer expectations would be. I would assume there's some additional cost with that. If that's the case, how long do you hold those costs? I mean, is that something that you're going to wait until you lap getting into next year? Or is that something that you can start to taper down some of the higher costs to maintain the service in a couple of months?

Yes, I mean, over time, right, I mean, just you look at the volumes across our network, including into the Northeast. But what the tonnage service that we have, we had some suboptimal purchased transportation that over time we get staffed in those markets and we get over the summer vacation peak. There's an opportunity to re-optimize that. And then your initial growth, you, obviously -- you got to get your people up there a month ahead of before your terminal opens and get them to their training and whatnot. Well, now my incremental costs are less negative, right, because I don't -- I mean, my management team is scalable, and you're basically adding drivers and dockworkers, and they go through a week's training. And so my incremental costs are less -- become an overall smaller portion of the expense, right? I mean, I think it will be -- when you look at the revenue per build going to and from those markets and obviously gaining some synergies across the rest of Saia's network, which is already operating at an efficient level, I mean, net-net, it should contribute at similar margins to where we're operating today.

We'll take our next question from David Ross with Stifel.

Rick, with all the talk about the expansion, there hasn't been as much talk about just the general productivity improvements at the other roughly 150 facilities you've got, because I know you've made a lot of progress over the past few years on linehaul dock and P&D. Can you comment on what's going on today? Where are you focused on making further improvements on those measures?

Yes, I mean, I guess, I would just comment kind of from an overall perspective, just to give you broad numbers. We're up overall about 7% headcount across our network on -- in the month of July -- I mean, or June, we were running up 9% from a shipment count standpoint. So from a staffing standpoint, there's a couple of -- about 2% overall leverage within the organization. That kind of gives you order of magnitude. And again, it comes across -- part of that is obviously we've got some incremental purchased transportation that will be re-optimized over a period of time. And then I think one of the big synergies, as we commented previously is our linehaul network actually tends to be historically overbalanced from a East to West standpoint, at least over to Texas, et cetera. And then -- so with a lot of our freight that we got from the inbound to the Northeast is the average length of haul is in the 1,200 mile -- 1,100, 1,200-mile range. So that also is running over a portion of our what used to be our empties on about -- making that more balanced. So there's quite a bit of network synergies within our organization.

Now you mentioned there that the incremental PT in the quarter will come down over time as the network is re-optimized. Historically, on a tonnage surge, how long does that take? Is that something you get back in balance in the quarter? Is this something that's going to take several quarters?

I'd say we should make good headway late -- whether there's 2 issues, right? One is with our volume adjustments that we made to more the 3PL blanket. Some of that was -- with the volume stepping down, we're actually taking some of it out kind of more immediately. And then when some of our heavy vacation periods and when kind of kids go back to school, so to speak, vacation period is kind of cut down and will have some incremental availability there as well. So I think late 3Q and into 4Q is when you're going to see that come off.

And moving on, we'll go to Jason Seidl with Cowen and Company.

A couple of quick questions. One, just so I understand, your July [mid to date] tonnage, 4.3%. That was adjusted for the 4th of July. So the actual number would be a little bit lower than that? Am I reading that correctly?

That's actually correct.

Okay. Perfect. Second question. On your truckload business that you're getting, do you expect an incremental step up given the tightness that we're seeing and the pending ELD mandate? Should we expect maybe some of that -- some of those yields in that to increase as we move throughout the year even more than it has?

Yes, yes, I think so. It's an interesting quarter for us, right, because -- and this is because of the volume growth that we had and the purchased transportation that we put in. Our empty miles were kind of at a very low level. And so some of that spot quote business that we have we actually kind of -- it became less attractive to us in the way our modeling goes. That segment of the business was actually the transactional business in that segment that we seek for backhaul is actually down. But I think what we'll see is, as you've commented is, some of the -- some of our regular LTL shippers that ship heavier shipments that could be on a truckload stop-off-type environment could come back to LTL, right?

Right. That's what I was thinking. Also, if we just turn our attention -- from my last question, to your blanket 3PL pricing. Obviously, you're walking away from some of that business because it wasn't as attractive, given, I guess, other business you could put in trucks now. You said it normally tends to come back given your high level of service in the industry. Can you talk to us about the time frame that it typically takes to come back to Saia?

Yes, I mean, usually, it's 3 months.

Okay. So we should see some of that already before the end of the year then?

Yes.

And we'll take our next version from Tyler Brown with Raymond James.

Rick, can you give a little more color on the TST Overland interline agreement? It sounds like that's up and running. Is that running maybe a little bit better than you had originally expected?

We knew kind of what -- how meaningful it was, and it was -- yes, it's going great, kind of in line with our expectations initially.

Okay, okay. Good. And then super interesting data about the inbound versus outbound mix on the northeastern expansion. I guess maybe I'm a little surprised the inbound side is so strong. I mean, if I think back to Clark brothers building that inbound market took maybe 2 years. But I guess my question is: one, I'm curious if that inbound mix has surprised you to the upside? And two, do you think that, that's a real key driver in keeping the cost impact down, just given the length of haul and balance benefit?

Yes. So the margin benefit is good, right? And it's kind of a 2:1 inbound market overall up there, so that didn't surprise us as much. And then from our perspective, where we have good -- we have better Saia relationships long term kind of within our existing geographies. So those are the people that brought the business to us right out the gate. So it was -- I think just the absolute volumes probably exceeded our expectations a bit, but the balance ratio, to me, wasn't a big surprise.

Okay, okay. No, that's helpful. And Fritz, just on the PT. Obviously, using a lot more now. It sounds like maybe there's some additional fleet investments becoming necessary. Curious for your thoughts on that. And then I know it's early, but any thoughts about '18 CapEx?

Yes. So we actually did buy -- changed the mix of our capital that we'd spend this year. We added some additional equipment this year. So the -- our total for the year, as I mentioned, has been around $220 million, but it's a little bit more (inaudible) around new equipment as compared to real estate initially. Just kind of timing on the real estate. Next year, I think that it's still going through our planning stages on the Northeast on specifically what the real estate requirements will be. But I think, order of magnitude, we're looking at numbers kind of where we are now, up from here in all likelihood, maybe up to $235 million, $240 million, but we'll be better positioned to communicate that down the road, but it will be at these kind of elevated levels for now to keep that fleet current, deal with the capacity and then also make these all-important terminal investments where we need to.

Okay, okay. That's good. And then just last one. Rick, can you kind of remind us on your tariff mix applicable for GRI?

Yes, it's about 25%.

And moving on, we'll go to Ravi Shanker with Morgan Stanley.

Just a couple of follow-ups here. The cargo claims decline that you saw, I think you said its driver some of your quality focus. I mean, can you just elaborate on that a little bit more in kind of how sustainable that could be?

Yes, sure. I mean, this has been a multiyear effort for us. We've put some very stringent process discipline around loading the trailers and handling the freight and using tools of straps, bars and airbags with some very rigid kind of rules of -- and standards. And we've been successful in implementing that across our network. Set some specific goals. Our dock supervisors have some incentives based on attaining their targeted cargo claims ratio, which is target improvements. And it's just blocking and tackling out there in -- on the dock every day. We actually also require pictures to be taken of each load a couple of times in the trailer and gives us an opportunity to review the quality at each one of the facilities and the opportunities for both quality as well as load average. So I mean, that's kind of the process that we've put in place, and it's been -- it's continuing to be institutionalized across our organization. And I think, particularly, when you see the growth that we had in some of the newer terminals to be able to continue to make headway from a quality perspective, it says a lot about our operating team.

All right. Understood. And just a follow-up to some of your pricing comments. Kind of -- just given the focus in the [commentary] on release and also on the call about freight having to meet profitability criteria and such. It -- I just want to confirm that, that's just a function of your kind of changing mix in the 3PL business and not some broader commentary on just changing pricing dynamics at the LTL space as a whole?

I think it's a favorable environment in which to take advantage if you have segments of your businesses that aren't operating well, whether it be lanes or customer-specific. And we just -- I mean, we look at the profitability of all of our customers. And then to me, we just looked at the segment that has not kept, I guess, pace with what the market -- what's happening with the market conditions over a period of time. And it was -- the segment was growing from -- on a meaningful level within our organization and wasn't -- was, again, was the worst operating segment that we had if you compare it to both national accounts and fields. So it's not a change in our philosophy, but we looked at it that it had actually deteriorated a bit from an operating margin basis just because we continue to make investments in the company and in our quality processes. And the rates in that segment we hadn't kept pace with, with the investments that we made. So we just need to make a step up.

(Operator Instructions) Next, we'll take a follow-up from Scott Group with Wolfe Research.

Can you just let us know what the annual employee increase was this year for July versus a year ago?

Roughly about -- almost 3.5% across the whole employee population.

And what was last year?

Right around 3%, so a little bit higher.

Last year was -- the driver number last year was higher than that. So it's -- overall, it's probably in a similar range.

Yes, yes.

Okay, and then...

Last year, there was a bigger step up for over-the-road drivers. And this year, we had some city markets that we needed to address at a higher level. So I think it came in at a similar number.

Yes.

Okay. And then you talked about, I think, the Houston area up like 20%. Are you seeing any signs of softening or slowing there as the rig count is starting to flatten out?

To be honest with you, I didn't look at that into July where we're running, and then some of that 3PL segment we had would have been impacted there. I'd have to look at it by segment and kind of get back to you and isolate that.

Okay. And then just last question, just bigger picture. If I think back a couple of years ago, the story was very much a -- we feel like we're heading towards operating ratio in the 80s, and then the economy happened. Now that we've got this growth story, should we be thinking that it's top line and not yet so much margin? Or do you think that there's still kind of a visibility to a sub-90 operating ratio? And if you have it, what's a realistic time line to get there?

Three years. I mean, again, that assumes we get even just a normal economy at whatever 2% GDP-type growth. And we have a road map to get there, and our organization is very focused on that. And we think that the expansion into the Northeast, while it provides a growth opportunity, it also, as we commented previously, it's a -- the total incremental market available to us will be $7 billion. And while we'll have some incremental cost to that, there's also in the 9% to 10% range of company fixed cost leverage. So if you price business even at a 93 or something, right, which isn't our target, it's more around 90-ish or something, right, and then you pick up the fixed cost leverage on that growth, another -- the incremental margin should be in the 20% range. So I think if -- I think the expansion actually contributes to our opportunities to operate in the 80s. And it's a good pricing market up there. While there's some competitive regional players, we tend to play more in the interregional market going up there, leveraging the investment we have on our existing network. And that -- then you're playing more against the national players that have a better yield profile. So we feel strongly that the opportunity is there to both generate growth and drive margin improvement.

Okay. And not to be nitpicky, 3 years, meaning by '19 or '20?

'20. This -- about half -- less than half of this year left, but we -- if you kind of model out to -- you get pretty far into the Northeast expansion at that point in time, too. So the terminals that we've opened already and will open next year will be more mature and have more share, and there's more of your terminal efficiencies that we'll be able to gain up there through density. So there's kind of a combination of factors that contribute once you get out a little bit.

And moving on, we'll go to Rhem Wood with Seaport Global.

Can you just -- Rick, can you talk a little bit about just your success in finding this new real estate, maybe the size of the facilities you're looking for, and then the timing of opening those, has that moved up at all?

Well, we found a Baltimore terminal. So we've made an acquisition there. And went ahead -- and as soon as the facility is available, we're ready to open it, the facilities that we've sought out for the next openings. We have 4 facilities that are of adequate size to go up there and get opened. I would comment one of the facilities that we moved into initially -- actually moved into 2 facilities initially are temporary. One of them, I have -- we have another terminal coming available in the first quarter of next year, that's going to be much larger, and one of the major competitors built a bigger facility and moved out of it and that became available. And then we're going to actually build a break bulk up there. Today, we're in a -- will ultimately be too small to service all the Northeast, but it's adequate today at like 65 doors, and we're building a 120-door break bulk that would be expandable. So -- and then in some of this -- the next markets that we move into, some of them are little bit smaller markets in Pennsylvania, and you're getting more in the 30- to 40-door size terminals that are similar to what some other players have in some of those markets. So while it's not -- it's not going to last us long term. We'll just lease those, and it will last us for quite a while.

Okay. And then the ability -- can you talk a little bit just about how the success of hiring drivers and how that's going as well?

It's a tight driver market out there. Are you talking about the Northeast or across the network? I don't...

Yes, really -- I was talking about the Northeast, but if you could comment on both, that would be great.

Yes, sure. No, we had a good initial reception for drivers up there. When you put a lot of new equipment into the market, I think people are excited about, drivers see the benefit of coming over to a company that has a good wage and benefit program. And you -- first drivers in, obviously, with the growth that we're going to see there, they're going to move up to seniority rankings quickly and have good run selections and start times. And so we've been -- seen a good initial reception up there. We've actually doubled the initial group of drivers that we've hired. We've actually doubled the number already since we originally opened up there. We continue to seek additional drivers, and then -- it's just a tight driver market. There's a bunch of markets where we're paying $5,000 and $7,500 signing bonuses in some of the tight markets to attract people. So summertime is hard, people have vacations planned, et cetera. And I think the willingness of people to kind of change gets -- will probably improve over the next -- the back half of the year and into March of next year, so it's just kind of the way it -- that's just kind of the timing of it and the way it works, right? If you don't get staffed up in the first 5 months of the year, people have plans. And unless they're out of work for some reason, right, it's kind of harder to make a step up in your staffing at that point in time.

And there are no further questions at this time.

All right. Great. Thanks for your interest in Saia. Got a lot of great things going on at the company, and the market seems conducive to our initiatives for growth and yield management. So we're full speed ahead with all those initiatives. Thank you.

And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.