Saia Inc (SAIA) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Saia, Inc. First Quarter 2018 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Doug Col. Please go ahead, sir.

Thanks, Hanna. Good morning, everyone. Welcome to Saia's First Quarter 2018 Conference Call.

Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer; and Fritz Holzgrefe, our Executive VP of Finance, 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 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 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 O'Dell.

Good morning, and thank you for joining us.

This morning, we announced our first quarter 2018 financial results, with diluted earnings per share of $0.80 compared to $0.44 in the first quarter of last year. The EPS comparison benefited by $0.03 from an alternative fuel tax credit for the full year of 2017 that was enacted in the first quarter of 2018.

Robust shipment and tonnage growth, coupled with continued pricing improvements, translated into meaningful year-over-year operating results.

Key first quarter metrics are as follows: LTL shipments per workday rose 8.4%; LTL tonnage per workday rose 12.2%; LTL revenue per hundred weight increased 7.7%. LTL revenue per shipment was up by 11.6%; and the operating ratio improved by 160 basis points; and operating income was up 57%.

The first quarter marked the 31st consecutive quarter of year-over-year improvement in our reported LTL yield, and contracts renewed in the first quarter included an average agreed-upon price increase of 7.6%.

A few other operating highlights from the quarter I'd like to mention before I turn things over to Fritz to review some financial results.

Rate per shipment increased by 3.6% to 1,355 pounds, benefiting from continued strong industrial activity and also from our efforts to improve mix. Length to haul grew by 5% to 837 miles, attributed to our expanding geographic coverage. Our cargo claims ratio of 0.88% worsened a bit from 0.75% in the first quarter. Our employee count is up about 10% compared to the first quarter of last year. And these -- as these new associates gain experience, we expect to see further improvement in our cargo claims ratio.

Purchased transportation miles in the first quarter were 10.9% of total linehaul miles compared with 7.5% last year. This increase is being driven by volume growth as well as purchased transportation used to balance the network after weather-related terminal closures.

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

Thanks, Rick, and good morning, everyone.

First quarter revenue of $393 million was 21.6% higher than a year ago, benefiting from positive shipments, tonnage and yield improvement, as Rick mentioned, and also from higher fuel surcharge revenue. Fuel surcharge revenue was 45% higher than in the first quarter last year.

Operating income grew 57% to $27.6 million compared to $27.5 million earned in the first quarter of 2017.

Our operating ratio of 93% was 160 basis points better than a year ago.

A few of the key expense items which impacted the first quarter are as follows:

Salary, wages and benefits rose 16.7% to $211 million in the first quarter, reflecting our growing employee base, as Rick mentioned, and our wage increase of approximately 3% last July.

Fuel expense in the quarter rose 37% over last year. National average diesel prices were up roughly 17% compared to the first quarter last year. And our miles in the quarter were up 12%.

Purchased transportation expense in the first quarter rose by 43.7% to $29.9 million, and was 7.6% of revenue versus 6.4% last year. PT usage was higher, as Rick mentioned. And the cost per mile was 14.6% higher, driven primarily by truckload market conditions.

Outside maintenance and parts expense increased 10%, in line with increased miles run by our tractor fleet versus last year's first quarter.

Claims and insurance expense in the quarter increased by 12.6% over the prior year from the combination of higher premiums and increase in accident frequency.

Depreciation and amortization expense rose 14.7% to $23 million compared to $20.1 million in the prior year quarter. The increase reflects our continued divestments in tractors, trailers and forklifts.

Our effective tax rate was 20.2% for the first quarter of 2018 compared to 31% in the first quarter of 2017. We expect our full year tax rate to be 24% to 25%.

At March 31, 2018, total debt was $142.6 million. Net debt to total capital was 19%. This compares to total debt of $156.9 million and net debt to total capital of 24% at March 31, 2017.

Net capital expenditures in the first quarter were $52.1 million, including equipment acquired with capital leases. This compares to $108.2 million of net capital expenditures in the first quarter of 2017.

For the full year 2018, we expect net capital expenditures will be approximately $265 million, including investments, internal 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, Fritz.

Saia is off to a really good start in 2018, and we have an eventful year ahead of us.

In the first quarter, we opened 2 new terminals, 1 in Fort Worth, Texas. It's our third terminal in the Dallas Metroplex and the 20th in the state of Texas, and it was opened in February. In March, we opened a terminal in Scranton, Pennsylvania, our seventh terminal in the Northeast, all opened within the past year. We'll open our eighth northeastern terminal later this summer in Pennsylvania. And we continued to advance multiple locations for additional terminal openings in the Northeast where we continue to target 4 to 6 terminal openings this year.

We'll be opening our second terminal in the Seattle market later this quarter. Similar to the opening in Fort Worth, this second location in Seattle will allow us to be closer to the market and provide enhanced service to our customers. There's an added benefit in that the new terminal opening release pressure on the existing facility and will benefit our hiring efforts, as the location will allow us to draw from a different pool of candidates.

As Fritz mentioned, our capital expenditures in 2018 are likely to approach $265 million, depending on the timing of some real estate transactions.

So in conclusion, the first quarter results were very positive from a growth and improved profitability standpoint. We look forward to continuing our growth and margin improvement in both new and existing markets as the year unfolds.

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

(Operator Instructions) And we'll take our first question from Brad Delco with Stephens.

First question. Rick, you talked a little bit about PT. One of your competitors doesn't use a lot of PT. They do have a really good cargo claims ratio. Longer term, as you build out the network and get density and balance like you want, do you still think you're going to have at least some portion of your network using purchased transportation? And why so?

Yes. I mean, there's some suboptimal purchase transportation, but it also does provide some enhanced capacity. There are some places where a truckload carrier could run into a head haul, we'd be running out empty, and they could pick up a load that may be efficient for them. So some of it is suboptimal and scrape some capacity and some of it is optimal. For us as well, we use the rail when we have weekends, et cetera, to be able to meet our service standards. And that's about 40% of those miles, and that's a lower cost and a lower-cost opportunity there. So we see it as a mixed bag, right, to some extent, you always want to control your own capacity and service quality. But some of the carriers are pretty efficient, and in some cases, it makes sense for us. So I guess, there's kind of a balance in there.

Okay. But you're not necessarily saying the increase in cargo claims is a function of increased PT? You're not necessarily saying that (inaudible) right one?

No. It's really due to the kind of the new employees, the number of incremental dock employees. It just was a bit of a deterioration. And obviously, we've been on a multiyear improvement to get the cargo claim ratio where it is. I still think it's a pretty good number. And it was actually driven a bit more by kind of a cost-per-claim scenario as opposed to the frequency. So I think from a customer satisfaction standpoint, we -- it wasn't really much of a deterioration. But we tend to report the number because we think it's pretty good in the industry. So we're providing that, too, but obviously, both from an investor standpoint as well as from a customer standpoint.

Okay. And then maybe my other question. Saia I think is pretty unique in the LTL industry. You're obviously growing, adding capacity. Do you see any other smaller private carriers adding -- as much you're trying to grow as aggressively as you guys are? And maybe if you could, just touch on what you think is happening with the overall LTL market.

Yes. I think Southeastern has done some of kind of slow expansion over the last 1.5 years or so, but nothing -- I don't think they have a vision to be a nationwide, and then ultimately, maybe more of a North American-type carrier like we would expect to do. So I'm not really aware of anyone who's pursuing the type of strategy that we have. And then the market's really good. And we're working on yield enhancement. We have some enhanced service offering. And we're working on business mix management as well, to try to target some shipments that have a better profile for us. And I think this is a very good environment for us to be doing that. And it's being kind of -- it's being well received.

That makes sense. And then maybe last one. Fritz, I don't know, do you give monthly tonnage update for April?

Not yet. So tonnage -- and this is our total LTL tonnage for April through yesterday, it's up by 10.1%, and shipments are up by 7.9%.

And just to make sure I understand that. So I noticed you guys aren't separately reporting TL and LTL. So the 10.1%...

Yes, let me -- both categories -- yes, let me just clarify for everybody kind of why we did that. Traditionally, we had on our public releases, we would list TL, which is simply a weight break, so that would indicate LTL tonnage that was in excess of 10,000 pounds. And we felt like that, that created a little bit of confusion because people interpreted that as truckload. And in fact, it really is simply heavier-weighted LTL shipments. So to be consistent with other public folks, we consolidated that into the single line. So what you historically would have seen is LTL and this TL breakouts were just considering all one now. So the 10.3% I just gave you is the total, so the old LTL and TL put together.

Okay, perfect. I just want to make sure I understood that.

We'll go next to you, Scott Group, with Wolfe Research.

Fritz, just so we have it, can you give us the monthly numbers for the first quarter on tonnage, just so we're apples-to-apples with the new.

Sure. Yes. So January, 13%; February, plus 14.4%; and March, plus 10.2%. So full quarter, plus 12.2% then.

Okay. Great.

Would you like the shipments numbers, too?

Sure.

Yes. So January, plus 9.1%; February, plus 10.7%; March, plus 6.0%.

And Scott and all of you guys, we have a datasheet that we'll -- that goes back and provides the combination of, basically, our LTL business, the total tonnage, and we'll be happy to provide that to you guys offline, if you need it for your kind of modeling and look at back in history, so you have comps.

That's fantastic. You always give us a little bit of color on sort of how you're thinking about sequential margins with the second quarter, if you can give us some thoughts there?

Yes. I mean. I think if you look at it, kind of on average historically, it's about 250 basis points better. And I would just say, given the current volume and yield environment, we'd expect to do a little bit better than that.

Okay, great. And I think last quarter, you talked about sort of 1.5 to 2 points of margin improvement for the year, obviously, and you're right in the middle of that range in the first quarter. Are you still comfortable with that for the year?

Yes.

Great. And then, just lastly for me. Pricing, I think you said renewal was up 7%, so that's a step-up from, I think, the 6% last quarter. Is there a ceiling at some point on this pricing? Or can it go even higher than this? And that's just the renewal number. How should we think about yields net of fuel rest of the year?

Well, obviously, we're seeing some increase in our weight per shipment, which is kind of negative on the yield, and then you got to offset, right, with the length of hauls going up. And then we're very focused on business mix management. It's a very positive yield environment. And it's a tough driver market. We're paying $5,000 signing bonuses in places to attract drivers. We just need to be properly compensated. You look at the capital expenditures that we have, obviously, it's increasingly a heavy technology-oriented business. We have a wage increase coming up at 1st of July, so we're just very focused on the yield and margin opportunity. And I think it's pretty meaningful. So I think it's a good environment, very positive environment.

Okay, great. And actually, just can I squeeze one more? The wage increase in ...

Yes. Go ahead, I'm sorry.

Yes. The wage increase in July, can you say what that percent is, and what it was last year?

Yes, so Scott, we're going to -- we approached this just like we did in years past, where it's a market, it's kind of a job category market to market sort of analysis. So our -- we'll be in a range of between 3% and 4%, with the drivers in some markets at the upper end, maybe even a little bit above that kind of a rate, with an average kind of 3.5% and above for the whole company. So it will be kind of that basis. If I go back a year, we were sort of 3%, 3.5% on average across the company, a little bit higher obviously this year. And again, just to stress, it's a market sort of based view there, so that implies to some markets are going to be a little bit higher, we've got to be competitive. And it tends to be the highest end of our range of wage increases are going to be the driver and mechanics frankly in total.

We'll go next to Matt Brooklier with Buckingham Research.

So I think you mentioned earlier in your prepared remarks that your purchased transportation costs did -- were a little bit higher, given the inclement weather that we had in first quarter. Are you able to parse that out, talk to how much weather added to that particular expense line? I'm just trying to think things on a go-forward basis.

Yes. It's -- I mean, I would think the weather was probably a little worse than it's been the last couple of years. They're kind of similar, so I don't know about breaking that out for you. I don't even know how we do that, right? But -- and we did -- created some backlog because you had shutdowns, and they're still picking up freight in different places, and then we need to move everything so we used some higher PT during that time period.

Yes. I would add that the cost per mile, as I pointed out, was up almost 15% in total. Most of that being on the truckload PT, it's just what you see in the market conditions.

Okay, that's helpful. And then, maybe if you could just talk to, if you're seeing any incremental benefit in your heavyweight product from the truckload spillover. It just seems like the truckload market gets tighter every month going forward. And trying to get your sense if you are seeing more volume opportunities. And I realized that you'd want to be very picky in terms of how you choose that freight, but do you think there's more volume opportunities on the heavyweight side originating from the truckload market here?

Yes, I think that's what happened, right? I mean the tide of the truckload market gets and then it -- from an availability standpoint, I think what you see is people need capacity, and the truckload guys, instead of taking a truckload stop-off-type route, they'll just ship it on the LTL because they can get a full load and make one stop, and it improves their utilization, I would think. So we are seeing that and those kind of heavier weighted-shipments are up, but almost at twice the rate that our total shipments are up.

Yes.

We'll go next to Todd Fowler with KeyBanc Capital Markets.

Did you give the percent of revenue? I think you've given us in the past couple of quarters that came from the Northeast here in the first quarter.

Yes. It's in the 7% to 8% range, and it's running obviously over $100 million a year. And even in the month of April, it stepped up again on a run-rate basis. So we're having good success there, and we're also working on repricing some business there now that we have costs and run rate. So it's positive on a number of fronts. And I think at this point in time, it's contributing positively to our margins from a contribution margin standpoint.

Perfect. I was going to ask that the run rate standpoint from a revenue, and you provided that, Rick. And then if you could, I just want to follow-up on that last comment. So the freight that's coming in now, the incrementals on that approximates the overall book of business at this point?

Not quite. We're not quite there yet just because we're not that cost-effective up there yet, right? So as we get density in our routes, et cetera, I think we'll be -- we would expect the productivity to improve at a faster rate. So it's probably a little below what our average margins are. But what you have, too, is now our overhead and fixed costs are being allocated over a bigger book of business. So from a costing standpoint, the way we kind of look at different reasons and whatnot, the network, some of the other ones are benefiting because I'm now allocating costs to the Northeast, so -- but yes, contribution margin-wise it's positive.

Yes.

Okay. And then how do you think about what a normalized level of incremental margins for the business is at this point?

I mean, it's a bit of a mix. Are you just talking about volume? Are you talking about volume in this yield environment? I mean it's just -- there's a lot of moving parts right now. And I think the opportunities are obviously pretty significant.

I guess if you're bringing on new freight, what are you targeting from an incremental standpoint?

20.

Okay. Okay, good. That makes sense. That's -- okay. And then just back to the pricing conversation. The 7.6% that you're experiencing here in the quarter. Rick, do you think that, that's where the market's at? Or is that reflective of some of the targeted actions that you're able to take and some of the yield or mix opportunities that you have within your network?

Yes. I mean, our data shows that our yield is below the market. I think you guys can look at the same data and you'll probably find the same thing. A part of that is kind of where we are in the marketplace, right? I mean, we grew up as a regional carrier, and you had to compete with those regional good operating guys that build a lot of directs, et cetera. And so we play in that market still to a meaningful degree. And then we also are expanding our footprint, have a different value proposition. We have improved our service, our cargo claims ratio. So -- but as you try to improve your yield, some of it's mix, right? Because a customer may use you today because he's a price player. If I decide I'm not going to be in the price market anymore because that, that doesn't really work for me or I want to -- I have to change them out with another customer, right, does this mean he's going to pay 14% more, right? So that's kind of -- so we're working through kind of this business mix management. And the other thing you can say is there's -- that's not a direct line thing when you're in a network kind of high-fixed-cost business, so you want to stage that in. But the market is really good right now, and we're evaluating unprofitable business or let's just say minimum-type shipments that don't have the margin you might want, right, even if it's -- let's just call it a 90% or 88% operating ratio, I'd rather have a 88% operating ratio on a $260 shipment than an 88% operating ratio on a $80 shipment, right? It's just not enough money in today's environment. So we're kind of working through those opportunities. And what I would say is I think the market is conducive to that right now given the strength in the market and the quality of our service of product and an expanded offering. So we're going to do it in a staged way and not take a bunch of risk on it. You've seen some other people will decide one day to get in this market, the next day they're getting out of it. Sometimes, it doesn't always go the way you're -- in a network business, the way you're modeling it. So I'm really excited about the opportunity. And with where we are as a company, I think we're staging these actions in a very appropriate manner. But given the strength of the market, we're also being pretty aggressive with that, and you can see that with the contract renewals, right?

Yes. Look, I mean the balance has been very good. I mean, you've seen people push price at the expense of volume, and you guys have been able to kind of walk and chew gum or balance that, which has been very impressive. And I'm guessing that the market's helping in doing that. Do you still think on some comparable lanes? I think in the past, you've said you're maybe as much as 10% or 15% below the market. Has that gap narrowed with the pricing actions that you've been able to do over the past several quarters? Or is it still kind of in that range at this point?

It's still in that range. I mean, you might call it 8 points or something, right? But if you look at us, we've been kind of leading from a yield standpoint. But other people are getting good yield improvements as well, so it's not -- let's just -- we're like 20% of -- the way closing the gap maybe, so it's still the most meaningful opportunity that we have, that, plus capitalizing on the broadening network to get that fixed cost leverage that we were talking about.

We'll go next to Jason Seidl with Cowen.

Guys, in talking to some shippers, it seems like the rails are already planning for peak season months ahead of time. I was just wondering if you've taken any steps to talk to your shippers well ahead of time and more so than normal like there.

Yes. I mean, obviously, I would comment, too, I mean we're doing that, and we're also aggressively staffing for anticipated peak. We started earlier this year because of our confidence in the market and the growth that we know we're going to get from the Northeast expansion. So it's probably like a little more training costs in the first quarter than we would have had in the past. From a staffing standpoint, normally, we wouldn't start kind of staffing for the peak in March, and we'd hire -- we're hiring every week start -- right through January, so our own readiness in terms of capacity is improved. And then, like you said, we're having some serious conversations with customers and making sure that the capacity that we're paying for and staffing for we are being properly compensated for, especially in some of these more head-hauled tough markets like in the Pacific Northwest, into Colorado, head haul business down into Florida. We just have to make sure that we're being compensated for the capacity that we're providing, so that's -- with those conversations are obviously being had.

No, no. That's good color. The other thing is more longer term. I mean, obviously, I think this market is a lot better than I think you would have envisioned it when you started the Northeast expansion plans. So I'm assuming your density level is ahead of schedule. How do you think about the need to start adding your own facilities and in terms of incentives like owned ones instead of just renting them? Has that stepped up? And how should we look at that on a CapEx basis moving forward?

So Jason, so I think when we have looked at our kind of longer-term CapEx, so this year, obviously, we've highlighted $265 million. And we're going to be focusing our real estate investments on what we would say are the strategic sort of assets that we want to own. So the Fort Worth facility we added this quarter, that's an owned asset, right? We'll -- as we see terminals in the Northeast that allow us to give us that runway to grow, we'll -- or the strategic location, we'll own those. I think that we pointed out that we bought the Laurel, Maryland facility. That was a well-positioned asset, great geography there. That one's -- we're not adding real estate between Baltimore and Washington, so it's a good location. So I think you'll -- we're kind of prudent about that. As we find assets that make long-term sense, we're going to own them. I think we're going to see -- in our business going the next several years, you're going to see us making real estate investments that bring us closer to the customer, not only in the Northeast, but in other markets. So Fort Worth, the third terminal there, that was -- what that was about. So those are strategic investments. Those are ones that we think differentiate us and they're the ones of the facilities that give us an opportunity to grow over time. So we don't think -- with that said, the least assets that we have currently utilized, we don't necessarily view those as a drag or an overhead cost. I mean those were things, yes, we're paying market cap rates, but we're also in a position where those are ones that are effective for us. But if we find opportunities to be more strategic about or have longer-term assets, we'll do it.

And we also just -- we bought Scranton as well. Some of the properties we're looking at are -- will be purchases, and then we have a contract on a break up there that we would expect to own as well. So yes, I mean, we want to own the strategic assets. And we're building terminals in Indianapolis, some other areas, we've built in Saint Louis. So I mean you see us kind of make -- we want to own those strategic assets when we can. I will give you an example though. Our newer terminal, it wasn't for sale, right? The landlord didn't want to sell. It's a nice facility, 101 door. One of the other major competitors was in there. We were able to secure that under long-term lease. So it's just the market, right?

We'll go next to David Ross with Stifel.

So can you talk a little bit about the average age of the fleet right now and where you want it? Fritz, you mentioned that you're wanting to drive it down further, but how much further? And as -- are you going to get there by the end of this year?

Yes. We kind of like the average track rate right around 5 years. So we're pretty comfortable to that, we're pretty close to that right now. So as you -- as we expand, we'll obviously continue to need to make fleet investments to maintain that average age. I think the big thing that I think I may have pointed out prior was the -- particularly our forklift fleet was something we're dissatisfied with the age. So last year, we really pushed that, made a significant investment to bring that more in line with what we think the economic benefit of the average age of being able to maintain the forklifts. The trailer fleet, we feel pretty good about as well. There's a little bit of an opportunity to bring that average age down, but we feel like it's not a -- it's an appropriate balance of what reliability, fuel efficiency and maintenance costs, and significantly all the safety investments that are on board.

And then, talking about the LTL business overall. Rick, could you give any color on, I guess which industries, regions might be doing better than others, specifically related to the oilfield services or the energy business that was a big part a few years ago and fell off? Has that come back with the higher oil prices? And then, how are you looking at business mix?

Yes. So David, on that one, the Houston region, which is kind of our -- we would consider a proxy for energy, has kind of outpaced the growth of the company here in the last -- first quarters. So it's a little bit above the average. So it's returning closer, not all the way to where it was in sort of 14, but it is done well this year. So that -- but I think it's important to note across the company, there's really not a significant outlier, although that is above the average, it is the -- we see pretty uniform growth.

And I would just comment on business mix as well. We're very focused on growing kind of the smaller accounts that have a better yield profile generally. And we're seeing some -- we're having a lot of success there in supporting new account opportunities as well as market penetration amongst our existing accounts for that segment. And again, that's a plus, too. And then that it operates better, and you got -- taken a big position with the big account going out with RFQs all the time as well. I mean, we like our big accounts that operate well, but not all of them do, so you're always kind of working through that. Those larger customers tend to have more of a -- sometimes a procurement, some of them have more of a procurement mentality, right, as opposed to partnership, relationship, logistics opportunity. It's a mix.

And so how does that relate to the 3PL business? Because they typically bring a lot of smaller accounts, but they're treated more like a large account. Are you able to -- by getting small account directly shrink your 3PL business or 3PL is still good partners, and is that business growing?

I mean, we provide the assets. Today, it's a expensive to provide assets and drivers, and they take a margin. I mean that's their business, right? So we're constantly evaluating that to make sure that the partnership relationship works. And quite frankly, in an environment like this, we're going through some pretty major repricing with them kind of like you would with other national-account-type profile business, right?

We'll go next to Willard Milby with Seaport Global.

If I can go back to the freighters transportation question and just going to ask it a little bit differently. Can you give us a sense of the percent of linehaul miles that are moving here in Q2 and the step-up? Or just talk about the step-up maybe from Q1 that we normally see seasonally and if that's maybe outsize one direction or the other, just given volumes, and then also considering I guess what weather did in Q1.

Yes. So Willard, we don't necessarily -- we don't break out the kind of step-ups or yes, what we're seeing because that's kind of a more a mix of business kind of a challenge there and when we use PT. But if I look back at the -- if I look back at the quarter, we used roughly -- at the first quarter, our PT percentage as a total linehaul miles that came from truckload is right around 7% for the quarter. So and if you add the rail in, then that'd be about 4% from there.

Yes. So about 11% of our miles are purchased.

Okay. So look at it here and that's this quarter or Q2? Sorry, I just missed that.

That was Q1. And if you look back over time, so if I were to go back to prior quarters, it's really kind of driven about -- it's driven about what that mix of business looks like, where it comes in the quarters, it's really not always a consistent pattern quarter-by-quarter. One of the things that Rick pointed out earlier on the call was that we've been pretty focused on hiring, so that gives us an opportunity to optimize some of that. So that's why it's not necessarily a good predictor of what Q2 miles might look like, because we're always taking action with that, and at the same time, freight patterns are changing.

I would also comment as some of the high-cost PT lanes, right, were, let's just say, for argument's sake, Dallas to Denver, Colorado. I mean, that's a very high cost -- you're either going to come back empty or you're going to pay a high cost per mile. We have to make sure that business is being priced properly. If it is, then we'll keep buying the PT and move in the freight at a good margin. And if it's not, then if we adjust the pricing and then the customer doesn't take it, then we take the PT out. So managing a network like this is a little bit -- it's part science, part art a little bit, right, when you're trying to predict what's going to happen.

All right. And can you talk a little bit about maybe if your real estate strategy has evolved from when you first set out expanding into the northeast? And I think you're running into a need to expand a terminal or 2 already in the Northeast. Has your view of what you want to, I guess, lease or own initially, have those facilities kind of grown in size and from what you thought you might do initially? And can you talk a little bit about how that has evolved and what you kind of plan to do going forward with these initial facilities that you expand into?

Yes. I think I would say is we're on our strategy, we're on our plan with this. As we have entered these markets, there were -- we knew that we would move sort of upsize the new work opportunities. So when we first entered that market, we leased the facility that would get us operating. And with the full view that we were going to move to a new or larger, more perhaps strategic location, so that's consistent with our plan. As we look at facilities, Rick pointed out that we bought the Scranton facility. That was well priced, and it gave us the opportunity to further penetrate the Pennsylvania market, so that move's consistent with strategy. Let's buy this one, price works, good location, reaches our customers. So I don't know that we would have altered that. We have continued to look for those properties that give us kind of a long-term what we would say advantage or place that we could grow into. So those were -- it really hasn't changed.

So, I guess, we're still thinking initial leases though for the majority of early expansion, is that kind of the best way to think about it?

I'd hate to be kind of evasive on this. It actually depends. So Baltimore facility I mentioned, we had -- there was a seller, it was an opportunity to buy it, we're going to buy that one because that's a great location. Scranton was a good location. Newark, we would have liked to own it, but it wasn't for sale, so that one made sense for a lease. That was the option we had. So I think it's going to be dependent on what the opportunity is.

We'll go next to Ravi Shanker with Morgan Stanley.

A broader question on the macro. There appears to be this emerging concern that the cycle may be looking peakish or may already have peaked and such. And then we may have seen a few majority data points but then other data points remain robust. I want to get a sense from your conversations with customers kind of how do you see things as they are right now. And also, perhaps more importantly, kind of what kind of data points are you looking at to maybe consider taking down the green flag and putting up the yellow flag on the overall cycle?

I mean, we tend to kind of follow industrial production more than anything else. But I think -- you and the market have way more data points than we do so -- and our customer base is so diverse. I mean, it's really -- you've got one industry may be killing it, another one may be seeing some signs, I don't know that we would have any more insights than you would have. Do you have any other comments, Fritz?

No. I think I would add that I think our strategy is, yes, we have -- there's an industrial -- emphasis in LTL, that's long been there. But I think a little bit of a differentiator for us is that we are finding -- continuing to find traction with our own growth initiatives around, be it northeast expansion or further penetration in existing markets. I mean, the Fort Worth thing is an important addition for us. We'll add other second terminals in other markets later on this year. So for us, the growth opportunity, our customers are like our value proposition, so that continues to drive our -- what our opportunity is.

Great. And as a follow-up. Are your growth plans agnostic to the macro? If you do see a bit of a slowdown, will you take it a little bit?

Yes, we could. That's -- the thing we like about this expansion strategy -- we can manage this, right? So we started out a year ago. We communicated that we're going to start with 4 terminals. And if it accelerated or we saw opportunities, we could dial it up with an accelerator or push the accelerator down. And we did. We added a couple of terminals beyond the original 4 planned. Right now, we feel pretty good about what we see, and so we're still on the track of 4 to 6 in the Northeast. So it -- those are -- the strategy is built around the ability for us to adjust up or down based on what we see in the market conditions.

And it appears there are no further questions at this time. I like to turn the conference back over to Mr. O'Dell for any additional or closing remarks.

Okay, great. Thanks for your interest in Saia today. And again, we're excited about the opportunities and expect an eventful year at Saia for the remainder of this year. Thanks.

Thank you.

And that concludes today's conference. Thank you for your participation. You may now disconnect.