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 Cole. Please go ahead, sir.
Thanks, Hannah. Good morning, everyone. Welcome to Si's Q1 2018 conference call. Hosting today's call are Rick O'Dell, Siya's President and Chief Executive Officer and Chris Holzgrefe, our Executive VP of Finance 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 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 Q1 2018 financial results with diluted earnings per share of $0.80 compared to $0.44 in the Q1 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 Q1 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 100weight 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 Q1 marked the 31st consecutive quarter of year over year improvement in our reported LTL yield and contracts renewed in the Q1 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. Weight per shipment increased by 3.6 percent to £1355 benefiting from continued strong industrial activity and also from our efforts to improve mix.
Lake Tahoe grew by 5% to 8 37 miles attributed to our expanding geographic coverage. Our cargo claims ratio of 0.88 percent worsened a bit from 0.75% in the 1st quarter. Our employee count is up about 10% compared to the Q1 of last year and these newest as these newest associates gain experience, we expect to see further improvement in our cargo claims ratio. Purchased transportation miles in the Q1 were 10.9% of total line haul 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. 1st quarter revenue of $393,000,000 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 Q1 last year. Operating income grew 57 percent to $27,600,000 compared to $27,500,000 earned in the Q1 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 Q1 are as follows: salary, wages and benefits rose 16.7 percent to $211,000,000 in the 1st 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 Q1 last year and our miles in the quarter were up 12%. Purchase transportation expense in the Q1 rose by 43.7% to $29,900,000 was 7.6 percent 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 Q1. Claims and insurance expense in the quarter increased by 12.6% over the prior year from a combination of higher premiums and increase in accident frequency. Depreciation and amortization expense rose 14.7 percent to $23,000,000 compared to $20,100,000 in the prior year quarter. The increase reflects our continued investments in tractors, trailers and forklifts. Our effective tax rate was 20.2% for the Q1 of 2018 compared to 31% in the Q1 of 2017.
We expect our full year tax rate to be 24% to 25%. At March 31, 2018, total debt was $142,600,000 net debt to total capital was 19%. This compares to total debt of 100 and $56,900,000 and net debt to total capital of 24% at March 31, 2017. Net capital expenditures in the Q1 were $52,100,000 including equipment acquired with capital leases. This compares to $108,200,000 of net capital expenditures $65,000,000 $65,000,000 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, Fritz. Saia is off to a really good start in 2018 and we have an eventful year ahead of us. In the Q1, we opened 2 new terminals, 1 in Fort Worth, Texas. It's our 3rd 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 7th terminal in the Northeast, all opened within the past year.
We'll open our 8th Northeastern terminal later this summer in Pennsylvania, and we continue 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 2nd terminal in the Seattle market later 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 $265,000,000 depending on the timing of some real estate transactions.
So in conclusion, the Q1 results were very positive from a growth and improved profitability standpoint and 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.
Thank And we'll take our first question from Brad Delco with Stephens.
Good morning, Rick. Good morning, gentlemen.
Good morning. First question, Rick, can you talk
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's some places where a truckload carrier could run into a headhaul and 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 create some capacity and some of it is optimal for us as well. We use the rail when we have weekends, etcetera, to be able to meet our service standards.
And that's about 40% of those miles and that's a lower cost and 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 No,
I said it's really 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 multi year 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 did 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 to both 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 or 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?
I think Southeastern has done some kind of slow expansion over the last year and a half 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, 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, did you give monthly tonnage update for April?
Not yet. So tonnage, this is our total LTL tonnage for April through yesterday is up 10.1% and shipments are up 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
It's all in both categories together. Let me just clarify for everybody kind of why we did that. Traditionally, we hit 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 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 consolidate into single line. So what you historically would have seen is LTL and this TL breakouts, we're just considering all one now. So the 10.3 I just gave you is a total, so it's been the old LTL and TL together.
Okay, perfect. And just want to make sure I understood that. All right. Well, guys, congrats on good results. I'll get back in queue.
Thanks, Brad.
We'll go next to Scott Group with Wolfe Research.
Hey, thanks. Good morning, guys.
Morning.
Rich, just so we have it, can you give us the monthly numbers for the Q1 on tonnage to serve apples to apples with the new?
Yes. So, January 13%, February plus 14.4% and March, plus 10.2%. So, a full quarter, plus 12.2% then.
Okay, great.
Would you
like the shipments numbers, Dhiv?
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 data sheet that will 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 looking back at history, so you have comps.
That's fantastic. Thank you. You always give us a little bit of color on sort of how you're thinking about sequential or margins for the Q2, 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 2 50 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, you're right in the middle of that range in the Q1. You're 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 a 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 the offset, right, with 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 on the 1st 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. Actually just can I just squeeze in 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 approached this just like we did in years past where it's a market it's kind of job category, market to market sort of analysis. So, we'll be in a range of between 3% 4% with 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 that it's a market sort of based view there. So that's why 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.
Okay. Very helpful. Thank you, guys. Appreciate
it. Thanks.
We'll go next to Matt Brooklier with Buckingham Research.
Hey, thanks and good morning. So I think you mentioned earlier in your prepared remarks that your purchase transportation costs were a little bit higher given the inclement weather that we had in Q1. Are you able to parse that out, talk to how much weather added to that particular expense line? I'm just trying to think about things on a go forward basis.
Yes. I mean, I would think the weather was probably a little worse than it's been in the last couple of years. We're kind of similar. So I don't know about breaking that out for you. I don't even know how we'd do that, right?
But we did we 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 use some higher PT during that time period.
I would add that the cost per mile was, as I pointed out, is up almost 15% in total, most of that being on the truckload PT. They consistently 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 truckload spillover? It just seems like the truckload market gets tighter every month going forward. And try to get your sense if you are seeing more volume opportunities.
And I realize that you 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 happens, right? I mean, the tighter 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 that 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 heavy weighted shipments are up, but almost at twice the rate that our total shipments are up.
Okay. It sounds like you guys are seeing some benefit. That's all I got. Thank you.
Sure.
We'll go next to Todd Fowler with KeyBanc Capital Markets.
Great. Thanks. Good morning. Nice quarter. Did you give the percent of revenue, I think you've given this in the past couple of quarters, that came from the Northeast here in the Q1?
Yes. It's in the 7% to 8% range and is running obviously over $100,000,000 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 re pricing some business there now that we have cost and run rates.
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. Yes, I was going to ask 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? Okay. So as we get density in our routes, etcetera, 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 regions and whatnot in the network, some of the other ones are benefiting because I'm now allocating cost to the Northeast. So, but yes, contribution margin wise is positive.
Okay. And then how do you think about what a normalized level of incremental margins for the businesses 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 could look at the same data and you'd probably find the same thing. 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, etcetera.
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've improved our service, our cargo claims ratio. So but as you try to improve your yield, some of it's mix, right, because the 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 doesn't really work for me or I want to I have to change him out with another customer, right?
It doesn't just 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 could 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. 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 a let's just call it a 90% or 88% operating ratio, I'd rather have a 88% operating ratio on a $2.60 shipment than an 88% operating ratio on an $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 product and an expanded offering. So it's we're going to do it in a staged way and not take a bunch of risk. I don't know if you've seen some other people who decide one day they're getting in this market and the next day they're getting out of it.
And 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, we'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 is helping in doing that. Do you still think on some comparable lanes, I think in the past you've said you've 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 it puts us it's we're like 20% of the way of 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.
Thanks a lot for all the thoughts this morning. I appreciate it.
Sure.
We'll go next to Jason Seidl with Cowen.
Thank you, operator. 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 they are?
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 Q1 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 were hired every week 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 or being properly compensated for, especially in some of these more headhaul tough markets like in the Pacific Northwest into Colorado, headhaul business down into Florida. I mean, we just have to make sure that we're being compensated for the capacity that we're providing. So that's those conversations are obviously being had.
No, no, that's good color. Thank you. 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. I'm assuming your density level is ahead of schedule.
How do you think about the need to start adding your own facilities in terms of sort of 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? Jason, so I think when we have looked at our kind of longer term CapEx, so this year, obviously, we've highlighted 265,000,000 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? As we see terminals in Northeast that allow us to give us that runway to grow, we'll or at a strategic location, we'll own those. I think we pointed out that we bought the Laurel, Maryland facility.
That was a well positioned asset, great geography there. That one's not adding real estate between Baltimore and Washington. So, it was a good location. So, I think 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 in 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 3rd terminal there, that was what that was about. So, those are strategic investments. Those are ones that we think differentiate us and the facilities that give us an opportunity to grow over time. So, we don't think with that said, the leased assets that we have currently utilized, we don't necessarily view those as a drag or an overhead cost.
I mean, those are 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 it
or have longer term assets, we'll do it. We also just we bought Scranton as well. Some of the properties we're looking at are will be purchases and then the we have a contract on a breakup 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 built in St. Louis.
So I mean you see us kind of make we want to own those strategic assets when we can. I'll give you an example though. In our newer terminal, it wasn't for sale, right? The landlord didn't want to sell it. It's a nice facility, 101 door.
One of the other major competitors was in there. We're able to secure that under long term lease. So it's just the market, right?
Right. Gentlemen, I always appreciate the time and nice quarter.
Thanks.
We'll go next to David Ross with Stifel.
Yes. Good morning, gentlemen.
Good morning, David.
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 are you going to get there by the end of this year?
Yes. We kind of like the average tractor age right around 5 years. So, we're that we're pretty comfortable with 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 were dissatisfied at 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 and being able to maintain the forklift. 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 the 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 Q1. 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 2014, 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.
Yes. I would just comment on business mix as well. We're very focused on growing kind of 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 it operates better and you're not taking a big position with a 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. And 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 a partnership relationship logistics opportunity. So 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 accounts directly shrink your 3PL business or 3PLs still good partners and is that business growing?
Well, I mean, we provide the assets today. It's expensive to provide assets and drivers and they take a margin, I mean, that's their business, right? So we are constantly evaluating that to make sure that the partnership relationship works. And quite frankly, in an environment like this, going through some pretty major repricing with them kind of like you would with other national account type profile business, right?
That makes a lot
of sense. Thank you very much.
All right, Craig.
Thank you.
We'll go next to Willard Milby with Seaport Global.
Hey, good morning everybody. If I could go back to the purchase transportation question and just kind of ask it a little bit differently. Can you give us a sense of the percent of line haul miles that are moving here in Q2 and the step up or just talk the step up maybe from Q1 that we normally see seasonally and if that's maybe outsized 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 what we're seeing because that's kind of a more of a mix of business kind of a challenge there and when we use PT. But if I look back at the quarter, we used roughly at the Q1, our PT percentage of the total line haul miles that came from truckload is right around 7% for the quarter. So and if you add the rail in, that'd be about 4% from there.
Yes. So about 11% of our miles are purchased.
Okay. So looking at 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 what that mix of business looks like, where it comes in the quarter. So 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 same time freight patterns are changing.
Okay.
I would also comment is some of the high cost PT lanes, right, where 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 had to make sure that business is being priced properly. If it is, then we'll keep buying the PT and moving the freight at a good margin. And if it's not, then 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 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 additional facilities that you expand into?
Yes. I think I would say just say we're on our strategy or on our plan with this. We as we have entered these markets, there were we knew that we would move sort of upsize the Newark opportunities. So when we first entered that market, we leased a 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 gave us the opportunity to further penetrate the Pennsylvania market. So that one was 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 a place that we could grow into. So, those are it really hasn't changed.
All right. So those I guess still thinking initial leases though for the majority of the expansion. Is that kind of the best way to think about?
I hate to be kind of evasive on this. It actually depends. The 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.
Okay, fair enough. Thanks for the time.
We'll go next to Ravi Shanker with Morgan Stanley.
Good morning, Jeff. 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 very early data points, but then other data points remained robust. So 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 mean, 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 got one industry maybe killing it, another one maybe seeing some signs. I don't know that we would have any more insight than you would have.
Do you have any other comments for it?
No. I think I would add that, I think our strategy is, yes, we have there's an industrial environment or emphasis in LTL that's long been there. But I think that a little bit of a differentiator for us is that we are finding continue to find traction with our own growth initiatives around be it Northeast expansion or further penetration in existing markets. I mean that Fort Worth thing is an important addition for us. We'll add other 2 second terminals in other markets later 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 your foot off the accelerator a little
bit? Yes, we could. The thing that we like about this expansion strategy that 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, put the accelerator or push the accelerator down and we did.
We added a couple of terminals beyond the original four planned. Right now, we feel pretty good about what we see and so we're still on the track to 4 to 6 in the Northeast. So, 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.
Great. Thank you.
And it appears there are no further questions at this time. I'd 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 this year. Thanks. Thank you.
And that concludes today's conference. Thank you for your participation. You may now disconnect.