Q2 2020 ArcBest Corp Earnings Call
Greetings and welcome to the Arc Best second quarter 2020 earnings conference call. During the presentation, all participants will be in the listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press star one fall by the fourth.
Or on your telephone.
Right anytime during the conference you need to reach an operator, Please press star zero I.
As a reminder, this conference is being recorded on Wednesday July 29, 2020 I.
I would now like to turn the conference over to David Humphrey Vice President of Investor Relations. Please go ahead Sir.
Welcome to the aren't bad second quarter 2020 earnings conference call.
Presentation. This morning, we done by you didn't criminals, chairman, President and Chief Executive Officer of <unk>. That's.
David called Chief Financial Officer about that.
Thank you for joining us today.
In order to help you better understand or bastard. Its results. Some forward looking statements could be by during this call.
As we all know forward looking statements by their very nature are subject to uncertainties and risks.
Complete discussions of factors that could affect the company's future results. Please refer to the forward looking statements section of the company's earnings press release.
Properties, most recently at the state public filings.
Nor provide meaningful comparisons certain information discussed in this conference call include non-GAAP financial.
Includes non-GAAP financial measures it outlined to describe the tables in our earnings press release.
Before turning it over to Judy I would take a moment, Doug congratulate her or being named one of the top T.N. women in logistics I Global Trade magazine. This is a tremendous owner and I'll, let her know how proud we are on this well deserved recognition.
With that I'll turn it over to Judy.
Good morning, everyone. I appreciate all of you joining us. This morning as you are aware the second quarter of this year started under the full weight of the koranda virus and felt like it.
Its impact was felt like everyone in almost every aspect of economy.
While the effects were still playing out during the first quarter call at night, you heard me mention that during times like these I feel that shines the brightest.
Sentiment has not changed.
In addition to having a strong balance sheet and a long term relationships. We have established with our customers I credit much of the success. We have had over the last three months to the hard work of our employees into the culture. We created here that cultivates creative problem solving for the challenges at the time.
I am incredibly proud of how our employees have operated in the face of adversity, especially our frontline team who come in they yen and dialogue focused on keeping product moving and providing the type of world class customer service that is expected when one does business.
With arc fast.
We have made a lot of progress over the last quarter in fighting one of the sharp declines in the economy since the great Depression.
<unk> are looking for to going through the results with you today.
Give me asset base business, we saw that shipping patterns of many of our customers highly affected by the pandemic outbreak.
Impact on individual customers buried with some like those shipping essential products seeing increased activity, while many others had business levels below the previous year.
We experienced significant increases in residential deliveries shipments related to growth in E commerce customers with an online order present thought vishal shipment volumes, especially those with products that are using the phone such as exercise equipment and outdoor storage sheds.
Despite the growth in E commerce with significant reductions in total shipment in tonnage levels in our asset base network. It was imperative that we match, our labor and other network resources with the business levels of the period.
At the height of the pandemic, we had to temporarily lay off approximately 1000 employees and we do many equipment and supplemental resources that are normally utilized in our network operations team responded well to the tightened challenge and as a result, most all of our operational metrics we use in may.
Managing our business improved over last year second quarter, many by at least 5%.
Oh, so despite the weak market our yield management strategy caused us to be successful in achieving needed account pricing level.
Reductions in the core account LTL rated shipments handled in our idea freight network, where the biggest contributor to the total shipment in tonnage decline.
As we experienced earlier in the year during the second quarter, we benefited from our strategy of utilizing lane specific data to identify capacity opportunities and build them with truckload rate in spot loads as well as heavier transactional LTL braided shipments.
During a period when shipment levels from regular customers were lacking mainly the spot shipments and lanes that had available capacity helped mitigate the total business declines we were experiencing while allowing us to more efficiently utilize available network resources.
I'm incredibly proud that power operations sales and yield teams responded during this unexpected period in our business. They have executed an exceptionally high levels and illustrated our ability to remotely maintain trusted customer relationships, while proactively flexing our asset base cost structure.
And our account pricing in response to an ever changing environment.
Right mix changes related to the lower business levels combined with the supplemental spot and transactional shipments that we opportunistically added in the network contributed to a decrease in total second quarter revenue per hundredweight.
Also as we paid for some time fuel surcharge revenue reductions compared to last year second quarter contributed to lower revenue per hundredweight comparisons. However, despite the sharp business reductions our industry experience. We are pleased that pricing rationality continues.
Later in the call David Cobble offer more specific details on our contract renewals, but they were good in comparable with last year.
Excluding the impact of transactional shipments and changes in fuel surcharge, we experienced high single digits per cent price increases on our core account LTL business.
Moving onto the asset light segment.
Significantly fewer total shipments due to business closures and reduced customer shipping levels related to the pandemic combined with slightly lower total revenue per shipment were the primary causes of the year over year second quarter revenue decrease in Arcbest asset light segment.
Automotive plant closures throughout April and May combined with continued weakness in industrial manufacturing reduce the demand for expedite services and that's impacted daily shipment count in that portion of the business.
The availability of lower cost capacity resources in the marketplace was another factor that contributed to the reduction and expedite business level.
Similarly, the asset light revenue contribution from truckload brokerage was below the previous year, I shouldn't count and average shipment revenue decline.
The effects of the pandemic combined with declines in the petroleum industry impacted shipments from our traditional asset light truck load customer mix, the largest second quarter year over year revenue declines in that segment of our business were from customers and oil and gas wholesale don't whole goods and in the manufacturing sectors.
Metal products in industrial machinery.
I felt like margin compression, resulting from these market dynamics decreased second quarter operating income relative to the previous year.
Also seen in the asset base business reduce consumer household goods moving activity during the uncertain pandemic period unfavorably impacted asset like financial results.
In these challenging times, we're finding that supply chain optimization and the need for unique logistic solutions is more important than ever for our customers. As a result, our managed transportation services continued to flourish and they were positive contributor to the I felt like result.
Manage daily revenue grew 82% versus last years second quarter and be the first half of the year managed revenue has increased 69%.
Crafting managed solutions allows us to combine our experience knowledge and the full impact of our assets and capacity resources in a way that help our customers navigate the uncertainty they are facing in the current environment.
Athlete met both roadside repair and preventative maintenance events declined reflecting the impact of a pandemic on the business activity athlete that's customers.
As a result second quarter revenue was below last year.
Production in this quarter's operating income was primarily related to the lower event count and next I would like to ask David Cod to go over the earnings results and operating statistics.
Thank you Judy and good morning, everyone. Let me begin to some consolidated people motion second quarter 2020, consolidated revenues were $627 million compared to $771 million in last year's second quarter.
Good day decrease of 19%.
All the gap basins, we get second quarter 2020, net income of 51 cents per diluted share. This compares to 90 cents per share last year.
As detailed in the GAAP to non-GAAP reconciliation table in this morning's owns press release adjusted second quarter 2020, net income was 67 cents per diluted share compared to a dollar and four cents per share the same period like year.
All this second quarter 2020, effective GAAP tax rate was 23.4 person than comparable with the non-GAAP effective tax rate.
We expect our full year 2020, non-GAAP tax rate to be in the range of 23% to 24 person that well be effective rate quarter, maybe impacted bottoms discrete period.
It's really just lower than expected when we calculated at the beginning of the year, primarily reflecting changes in pre tax income levels in certain tax credits and lower nondeductible expenses as result of reduced travel related costs experienced during that they've been Nick.
We'll be builds of our GAAP cash flow and second quarter are included in our earnings press release.
Got a June our cash and short term investments balance totaled $574 million total liquidity, including are catching ball and availability under existing facilities with $690 million.
Mitchell covenants continues to be a good place to do the Jean Georges leverage ratio was at.
For the one compared to the maximum allowable of 3.5 to one.
Our interest coverage ratio ended the quarter at some 0.38 to one compared to the minimum allowed at 3.5 is.
Total debt at the end of the second quarter.
When he was $533 million included $250 million in their credit revolver $85 million Baldwin oversee the securitization.
Notes payable published on equipment for asset based operation equaled $198 million you could thought that interest rate on all of our debt was 2.1 person.
Combined with our cash Dolphins, we ended the second quarter with net cash of $41 million compared to net debt of 3 million at the end of the first quarter, that's an improvement of $44 million.
We continue to monitor our customer base regarding accounts receivable back to the pandemic loan repayment schedules either dependent period of the good place with our receivables we met its benefit.
Good morning.
Getting in April the need to see depend didnt have some impact in the timing of customer payments.
Dependent treated for account base of June we stabilized anymore, improving because at least factors in the increase in net cash position. We're reviewing options for repaying during the third quarter with fewer than 25 million of incremental bones and drew down March this year.
But we did not make treasury stock purchases during the second quarter. We have maintained this program along with our quarterly dividend payments.
And shareholder value.
Capital allocated to these programs that has been at reasonable levels and he will continue to monitor these programs.
The original cash requirements for operations relative to think potential economic <unk>.
At the beginning of April we've committed cost reduction would include a 15% decrease in the salaries have all been employees just mentioned board Magic work. This is on four when taking in the 15% decrease from the fees paid or this board members as well as other cost reductions.
When compared to second quarter 2019 compensation related reductions resulted in savings of approximately 15 million in second quarter 2020.
We are experiencing some a minimum of financial trends that include sequential business improvement increased cash levels stabilized customer account in the truth and improved EBITDA.
Well, we continue to face uncertainties and you've done a good outlook.
Cost reductions will be restored beginning in the third quarter 2020, including restoration, London salary rates to previous levels.
I wouldn't tell you company match in the board fees.
These actions are warranted, especially considering the sacrifices made by employees since the beginning you continue serving our customers in the nation.
The sequential basis compared to second quarter, 2020, well guess anticipates that the increase in third quarter to them 20 expense associated with these cost restorations being approximately $10 million to 15 million Boes.
Yes, it based second quarter revenue was $460 million compared to $560 million last year the per day decrease of thinking personnel.
Asset base quarterly tonnage total tonnage per day.
<unk>, 13.8% versus last year second quarter for second quarter 2020 by month asset base daily hold times versus the same period last year decreased about 14.3% in April.
By 14.2% in the you'd be groups about 13.6% in June.
As Judy mentioned Burger business level decreases that were primarily driven by the impact of the pandemic on our customer shipping levels were somewhat offset by the addition spot truckload weighted shipments LTL rated transactional shipments added utilize available equipment capacity.
Maybe offensively network.
Shipments per day, the second quarter decreased by 13.3 person, that's compared to last year second quarter.
Year over year level of reduction in shipments was left for each sequential month of the quarter.
Second quarter total build wasn't per hundred weight asset base shipments decreased 4% compared to last year.
Excluding fuel surcharge billed revenue per hundredweight asset base, they'll feel ready right and slightly positive than quarter.
I said those customer contract renewals and deferred license agreements negotiated during the quarter average increase was 3.2% which was comparable with last years second quarter.
Washington, traditional published LTL related business, excluding fuel surcharge.
We saw a person looking at high single digits.
Adjusted basis, our asset base second quarter operating ratio was 94.4% compared to 93% in 2019 second quarter.
So far in July as a business through July 27, Qunar asset base, because takes versus last year or as follows asset base billed revenue per day decreased 7% total tonnage per day decrease five person that total shipments per day declined 6%.
Total billed revenue per hundred weight decreased approximately 2% impacted by lower fuel surcharges and product mix changes.
Good luck heavyweight excluding fuel surcharge on Nokia rated shipments was flat it was driven by profile changes related to the addition of transactional shipments.
Excluding fuel surcharge blood from traditional published LTL business.
A lot definitely 20 increased opportunities and high single digits compared to watch it doesn't the Nike. In addition, the average increases in contract contractual renewals with the bird plucky agreements negotiated so far during July 2020, or running ahead of those upping the recent second quarter and better than last year's third quarter.
Switching gears and historical average sequential change this massive based operating ratio in the third quarter versus the second quarter has been roughly flat.
However, given the impact of the covenant can paint given that the government twin sequential operating ratio comparison. This period may not be comparable to historical trends depend depending on business levels through September.
Even if they get a previously committed salary reductions and other cost reductions that I mentioned earlier would impact when I sit based operating results.
Third quarter relative to the second quarter.
The impact of these additional cost in third quarter profitability, what's considered in our decision to restore them.
Some operational resources are being added back this business.
Bruce those costs will continue to be careful manage the business levels.
Cultural change in the operating ratio would be influenced by the level of sequential revenue increase that exceeds the cost restoration that I mentioned previously in the annual contractual rate increases you wages have to July.
One and leading health and welfare rates effective August one.
Well the asset like business in total daily revenue combined instant like businesses decreased 15% versus last year second quarter, reflecting revenue declines in both the arc Deaf segment net fleet.
The total that's got like business operating income was $2.1 million in the second quarter compared to operating income of $3.1 million last year with a decrease primarily due to reductions in total business levels, particularly you know nextradio operations.
That's it like government to the art the segment excluding fleet met its flat in July on a cleaner basins compare to the car year. So far in them a purchase transportation expenses, a greater percentage of total revenue, which will result in overall margins approaching for the month when compared to July a year ago.
This morning, we filed an 8-K that included our second quarter 2020 on Julie along with an exhibit that provided some additional information about our current quarterly financial results.
Along with our recent business levels in our future expectations on certain financial metrics.
Some conversion that includes more details in a July business trends should be helpful. When modeling expectations for 2020 financial results.
I'll turn it over the gene for some closing comments.
Thanks, David.
Going forward are nice positive, while none of us here or in a position to predict what the economy is going to do and that kind of not the indicators that we follow are showing signs of improvement. There are some predictions on a second wave of the virus in the fall if that occurs it could impact fourth quarter business levels and our financial results for that here.
However, we remain positive about the company's trajectory and are in a strong position to respond to whatever the rest that's very unpredictable year I haven't store.
Those of you had been following our best for Awhile I Hope that you can see how much the company has transformed over the last decade, we have worked hard to diversify our business model to not only allow us to provide a wider range it solutions and services for our customers. That's also synergize the surfaces to make each individual components strong.
Longer.
We have increased our utilization of data and technology led by our in House Arcbests technologies group to integrate innovative solutions into our processes and the services. We provide these efforts combined with our customer in session and nearly 100 years of shifting experience that paid off and we continue to receive five.
Marks from our customers.
I know I touched on this in my opening remarks earlier, but I credit this to the strength of the culture that we have cultivated here at aren't best our team fully embracing our core values and has been this commitment that drives our team to excel regardless of the circumstances or the environment 2020 has indeed proven to be.
Difficult year, and so far we have successfully navigated the unexpected challenges. It is presented I continue to admire how our employees have responded to the difficulties presented them over the last four months and how hard they have work this might be set backs to keep essential goods moving throughout our nation.
With business trends, improving and an acknowledgment of this heart work, we're very pleased to be able to reverse some of the cost savings measures. We took earlier. This spring as always we will continue to monitor business level and make adjustments where necessary. However, I truly believe that we've had some of our best work ahead of us and I look forward to show.
During all of it with you in the coming not.
And now I'll turn it over to David Humphrey to conduct our question and answer session.
Okay for like I think we already good talking to Kuwait and so we've got some bumps in the queue. So go ahead with that.
Thank you.
If you would like to registry question. Please press star one fall by the four on your telephone you will hear a three Tom Tom talked knowledge or request.
If your question has been answered and you would like to withdraw your registration. Please press star one for about a three one moment. Please for the first question.
Our first question comes from Chris Wetherbee with Citi. Please proceed.
Hi, This is me I'm on for Chris Thanks for taking my question.
Okay. So first.
Personally I want to start with the asset based segment I know that business trends improved year over year, it's quite Shlaim in July I, just wonder if you provide more color on the puts and takes when it comes a sequential or progression in the third quarter. I know you said it may not be comparable to historical trends of Luckily swap I was just hoping you can provide some context casual magnitude of deviation from that.
I will turn.
Now let me Oh.
Let's start with kind of Cymbalta realms.
A second quarter to third quarter alone placements, which is a mentioned revenues in July of running about 7% below.
A lot of 2019.
Maybe compare that to the first month of the second quarter April revenue being down 21%.
Well to the increase in revenues in July versus April that's that's going to be above our historical more of a comparison of let's say those first months with the sequential quarters.
No we mentioned or did you commented about a productivity measures being really good in second quarter.
Many of those improved button, 85%.
That's that's metrics like shipments previous implying a load average empty miles being down substantially.
So.
Yeah, but a lot of that comes from the various things and one of those being the flexibility of our labor contract provided for us to the ability to.
Mike.
Decisive and nothing timely resource changes.
I didn't think that is going on in a.
Let us say a lot of it.
To give you a better context about the environment, but the depended that get allow our customers to kind of expand the reported windows.
Until there was also less congestion on the street when you think about.
Closures and alike.
At the same time river to manage their schedules.
Customer requirements you.
You didn't give you add on to visit our ability to use of technology around our pricing programs, we'd be able to feel remaining you'd be capacity to build good line whole loans.
We do expect productivity levels to weaken foam as we are serving customers working foods or disrupted supply chains as we move forward.
This economic reopening if you will.
However, we do expect that productivity should remain in a good place a compared to the prior year are benefiting from technologies that Oh, we talked about embedded application things like dynamically price for our network optimization software or line haul route optimization leitman software.
Loading this Ben's point upland software and mobile this backs and so with all that I would say that.
So far in July our shipment count is ahead of our views and why hours.
Traditionally don't talk about prices is and maybe the good place that we do expect yield to cover inflation.
Including the Haynesville Union wage and benefit increases.
So.
And certainly everybody's economy is good and food and food so rather than the minimum for most of August and September, but but anyway I just want to give you a broader context of what we're seeing in kind of health second quarter of would consider those things.
Does that help right.
No. That's very helpful. Right here also separately I don't want to talk when you mentioned about yields I know, you're saying that 100 weight or ex fuel unhealthy already shipments was flat in July versus like low single digit increase in the second quarter and I'm just wonder if you could provide some additional contracts on where we expect growth the trend going forward and how it.
The actual shipments might be impacting uptick.
Yeah, I would just for that.
A lot of what you're seeing and that in net revenue per hundred weight metric is mix related in our business mix so well.
I would describe the pricing environment is as good positive.
Rational instead of term.
But oh, so we see that.
The meeting in a good place.
Got it.
And finally I just wonder can provide any additional color on the sequential expect to change the asset light or in the third quarter I know you cross and kind of classic I suppose athletic.
Yeah, I would you you know as Judy mentioned, there were a number of industries in sectors that impacted the asset light business. So auto being one of those with the plant shutdowns in a movie moving business was impacted significantly within the with customers hasn't come from.
Moving and I'm, particularly in April and so.
Manufacturing as well with Citi.
Many of those plants also shut down and so.
Sequentially.
You would.
With openings of auto plants and manufacturing plants that are now.
Particularly helps expedited service and then you get as you see customers.
Doing more comfortable that moving a him so that would help our moving side of that business.
All of those are you know with <unk>.
We think trend positively from second to third quarter I think the other thing that we're seeing in the market is the you know whether this whole foods is a question but.
Capacity Kinda Titan.
So which been.
Reports about spot rates moving a moving higher you see the India being units or higher places will so all of those with the typically bode well one thing for asset light business as we move forward.
Right. Thank you for taking my questions.
Okay. Thanks, a lot William Thank you.
Our next question comes from Todd Fowler with Keybanc capital markets. Please proceed.
Good morning, Todd.
Hey, Judy Greg Good morning, How're you.
Good how are you.
Good so I wanted to follow up on on the yield comments or the yield question. There can you help square the 3.2% increase in contracts during the quarter with a comment around to high single digit price increases you're seeing with core accounts and then the comment that pricing has improved sequentially now into third quarter.
Seems like a pretty quick response to some of the improvement in the tonnage or the volume environment is that just normal contract renewals or do you have the opportunity to maybe reprice I'm afraid I'm in the market is trying to just coming back.
Well Todd you know the the additional component there is just our care based business.
But you know what you would consider whenever you're thinking about us kind of holistically. There on that core account LTL pricing and so what you typically think of with contract and deferred pricing arrangements and says or a larger more price sensitive account.
And you know those are good solid increase level, but I think and to see that during this period I'm is especially good and so I think you have to take all those pieces together to get to the overall result, we did and then you know as you know that high single digit comment factors out there.
Transactional and spot related.
Titan shipments that we attracted and those just so hard to see if all that thought <unk>, yeah, we're making those decisions.
Based on that capacity that we have and we're looking at those all that incremental profitability basis, and making sure that those improve our situation as we're making no those pricing commitment.
Oh no.
It does no and I understand all of that and then just the to follow up on kind of the pricing opportunity in the third quarter is that just normal contract renewals and the timing of those renewals coming through or is that some additional pricing opportunity as tonnage is coming back.
Well it really I think it's kind of.
It's business as usual with one caveat hot and you know that would be that yeah, we have seen a little bit a delay in in the finalization of some of our call I'm trying to work for I think were middle just because oh how.
This place so to speak similar customer.
Contacts art as we go through this and so we're not seeing anything you know currently troubling there, but we do see some delay but you know we have contract renewals every month and so we're going through the normal costs US there as we would you go into third quarter, There's no different act.
Tivity I don't think than you would see in the first half year and you know we are.
Taking any specific pricing action ads as the tonnage comes back, but just addressing our account by account level as we typically would and you know I think that you're looking at the profitability of account, making adjustments based on that and having those conversations.
Archie normally what to the extent you you have that customer contact available.
Got it Okay. That's super helpful. And then just a follow up you care to comment on what the monthly or trend was during the quarter. I mean, obviously, we're seeing the quarter average we know there was a very ball quarter different trends in April versus where you were in June.
And I'm just trying to I'm curious, where you ended up in June and maybe just kind of a rough directional number if it's not exactly that give us it.
Do you have where you exited the quarter versus where you started to that.
Well I'm I'm not going to give me the specific numbers or anything, but I will say I mean, you could you get to observe this by the different 8-K disclosures that we get throughout the quarter April was like Rosemont.
You know it really did not contribute much in terms of operating profit to the quarter and certainly June was Ah you know much a much greater contributor to the corners profit.
And we were encouraged by that and you know so I think you see a or hear some commentary from us about momentum you know we feel like the momentum as we ended the quarter with certainly improved you know from.
And we were when we released our first quarter roles and so I hope that helps.
Yeah, no that make sense and that's kind of what I figured and was hoping to maybe get a little bit more granular, but I understand maybe not one has to get that level until so truck.
Yeah, that's our hi.
I'll turn it on <unk> public sector jobs right. Okay. Thanks, Frank Thank you.
Our next question comes from the line of Jack Atkins with Stephens Inc. Please proceed.
I want to David in day, one is that.
Oh, Thanks for taking my questions here. So I guess you know, we're hearing quite a bit about E commerce, and there's obviously been a shift in sort of consumer purchasing behavior and the free markets I think a reflecting that you don't is there anyway to kind of think about the opportunity that.
You see in front of your guys.
Commerce or whether it's in a short on time or longer term.
Just want me to see activity looks like it's here to stay is there any way to going to think about the opportunity that can provide an LTL network like.
Got it over the next couple of years.
Well I mean, it's certainly a good opportunity Jack and I think that its illustrated by whats been happening Yeah, we had a tremendous amount of growth in first quarter, even before the pandemic started so that tells you something right. There I'm you know I think our residential deliveries shipments related to E commerce and the first quarter were up.
12% and then second quarter, they were up 35% and so it really accelerated but I think it's important to look back at that first quarter data point, because that was a good level of growth before that the pandemic.
And you know I think this whole Ah stay at home you know that change that's occurred with people has really contributed to a greater comfort with having those kinds of transactions you know these larger type items whether its.
The ones that I mentioned of exercise equipment or storage sheds or if it you know outdoor furniture or it's a bigger items like televisions and other inside the house items I think just because I need to do it I think more people are doing it and there are more comfortable with it and one of the things that.
It's been a great I think advantage for us that weve.
Encountered is that we've been in this business for a long long time I mean, we argue pack business was started in 1997.
So all the way back then you know we had to get comfortable with going in the neighborhood the requirements of delivering to a home and what that meant to our city route and the requirements for our city drivers you know as they ran countering that type of environment and so you know I think that what that help.
It's just the customer service line I'd to deliver great service, but it also helps you understand your costs and the timing and that sort of thing, which you know as we've seen this big increase if that's helpful to us and I think David mentioned this earlier there have been some advantages, which some of these we hope would continue and that is just.
The comfort level to extend appointment windows by some of the shippers that are shipping goods to the home and you know we've seen a that that because of the pain. They make their desire to have in house delivery of the things is not as high as it was and so we you know.
One more curbside or threshold plaque deliveries, which it's better for productivity for us and menthol. They lesser amount of traffic has also helps out of anything.
So you know if I know some of those are not going to continue but you know we're hopeful that that you know our ship or customers that were experiencing see some of the benefits of this too and would continue which I think would allow us to do more and do it more effectively.
Okay. That's about already said, yeah I'm sorry.
Yeah, I'm, just going to add a couple of things there just thoughts around you know obviously the pandemic celebrated the trend of increase in E Commerce.
Im sales, but but whether you think about the.
The expanded line of products that are being handled by E commerce.
LTL really works well.
The flexibility that good to see these vendor shipments to be the retail fulfillment centers or distribution centers.
You're asking about the C consumers, but.
But it's just it's also helping US there we think it in and oilfield general, but the and think about.
The brand in the end of the value that we bring in the service component to that.
That's really value and yeah as customer expectations kind of the increase over time and.
Getting those are the.
Service requirements, Matt No retail plus program as part of that as well all that kind of has.
The benefit I guess of.
LTL and it may be a branded LTL, but but the same time, our asset like operations benefit from this E. Commerce treatment I mean could you tell me to decided that I mean, you think about Oh, just the sourcing of product for one and how.
So we're seeing is maybe being change whether it's usually.
Or even that we into either the U.S.
That's one aspect and killed supply chains of changing I guess.
Just because short cut the.
We're able to help with particularly around our main solution you saw that with their managed solutions growth in quarter.
Has been growing up wishes that need for customers and systems home on developing supply chains and.
Designing optimizing those and so we're there to help them with that and then our.
Our services International home or that's just loves to.
The full load brokerage or or expedited service and all that or is there too.
This is continuing talmers treatment I think.
Okay. That's project that makes so much for the time slot.
Thank you.
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Good morning, Scott warning.
Hey, good morning, guys, it's Rob on for Scott. This morning, I'll start off [laughter] H, Judy just to kind of follow lock in in terms of the asset base Oh War, we saw the exit exiting the kind of at a much stronger profitability spot in June and probably historically, we ever have.
You guys have called out for the asset based segment you know what we're backing into roughly 190 to 260 basis points and of sequential.
Incremental headwinds can you.
Speak a little bit more in terms of should we be expecting if if normal seasonality plays out over the next kinda couple of months should we be expecting kind of sequential margin improvement can margins be flat or do we have to go backwards because of the incremental costs, which would which are coming on.
Well, we feel like that you know what we experienced in the second quarter really shows you the alignment.
We're able to manage our costs you know to the business level and you know that is certainly our intention as we move forward and you know the they obviously the July results as they relate to you know what we experienced in the second quarter, but also with June you know, we're seeing some some growth.
There and there's you know the again David went through you know some of the details and and I did as well on the yield side, but we're not seeing a you know a kind of a concerning change or anything there and I think you know son of a or b the technology enhancements that that David mentioned Oh.
Going to continue and I think the visibility that we have a of our Clos and you know and waves to help ourselves with those costs, which the transactional LTL shipments and other things that we've we've done a to try to improve the utilization will continue if they need to and.
You know when I think we have going forward is a and ability to serve our our core account LTL customers more because we're we're seeing bear business is a three open and you know the one the one thing that I would mention though in addition to all of that is I think.
In the second quarter, you know, what you had especially at the beginning was an opportunity to really.
Adjust cost because you know you had the knowledge you know that a lot of businesses were shut down as were work coming into the rest of the year I even have in front of me a map that shows just the lumpiness.
The restarts of all of our customers. That's that's difficult to manage and I you know I think that making sure that we're serving our customers well even is on the even as that is is something to consider as you as you think about the next month and as we close.
2020, it's not perfect. A this is a I a difficult business on a regular day you know, but you know you start adding some of those elements into it. It it becomes a you know even more of a challenge, but what I'd say and we've done a lot of looking at this you know back to 10 years ago.
The great recession, or even you know other periods, where we've had these downturns.
Our visibility into the that cost levers in the business our ability to use line haul optimization, you know lightly notification a mobile app to better manage the activities of our city routes and make US aware you know of any issues holding our people accountable.
You know to the standards that we need to you know those those kinds of changes in the business have really been encouraging and I think very helpful and allowed us to gain the result that we did in the in the second quarter and some of the Clos actions that we could we.
We stated that those were you know temporary and to address what we werent really sure.
Was that if the situation that we were going to be dealing with I mean, we had concerns not only at the business drop that also love you know some of they customer collections and those kinds of things and and we're really past that now and we've we appreciate that we are and arrest restoring those is it's really the the right thing.
To do given you know the momentum in the business and so we're we're pleased to be able to do that.
Okay, and I guess.
Quick following up in terms of the July update for the tonnage per day or their shipments per day up foreign 3%.
Sequentially, how does that compare to normal seasonality versus June levels for afraid half right. It's it's it's much better than normal much better.
On the high high end of the you know kind of the best ever.
All right appreciate all hop at Walmart like will go vertical wall.
Bikes.
Our next question comes from David Ross with Stifel. Please proceed.
Hey, good morning, just sat on for Dave Thanks for taking questions.
Good morning.
Wanted to get a bit more color on what you're hearing directly.
There is regarding their plans.
You know throughout the summer and then I guess specifically.
But a little bit more detail around how much auto.
Shutdowns, they're impacted results order.
Whiteside and sort of how we should think about that going forward. Thanks.
Okay.
Well, you know customers a world where overall, we remain really a I'd say cautiously optimistic about the momentum that we're currently seeing with our account base.
You know customers and states are really reopening which is helping our business volumes. You know our sales team has really been able to continue to engage with customers. Despite this remote work, which is really encouraging and you know we're able to use our technology stack in our our reach.
Horses in the ability to be able to do that and Ah you know so we feel pretty good about that many of our large accounts are asking us to help bring some stability to their supply chain and it's uncertain environment. They did mention that and it's a great opportunity for us to position the integrated solutions that we have or even managed fully.
And so our pipeline is strong we're seeing more and more of our customers you know looking to us because of the multiple and again integrated solutions that we have we've seen you know are as you mentioned, our expedite business levels pick up and.
That's a pretty Oh, hey, within the asset light segment, that's a a sizable component of you know the utilization of our straight trucks and our cargo vans.
In that business and that's that's good it's you know.
On the expedite business, it's somewhat you know less than it used to be because of the the work that they do with you know other manufacturers are high value products and then the life Sciences vertical, but you know if you combine auto and you know manufacturing other manufacturing and.
You know that that together is I don't know you know somewhere between 30 and 50% of the total you know that you have there maybe maybe a little bit more when you look at the work that we do with three t. else because that's all though influenced as well and so we're encouraged that the auto plants are coming back online.
We're seeing that have a positive impact as indicated by the information that we have in our 8-K and.
I think that's something that was weak even in 2019 as we started the year. So if we can see some normalization. There you know it it will help our asset light results and then you know that with the disruption in supply chains are they work that we do and.
That division is really helpful in certain instances and our customers have had.
They know us to rely on us for that and I think that is something that's a benefit as we go forward until things settle out.
Excellent. Thank you.
I liked a lot that.
Our next question comes from Jeff Kauffman with <unk> capital markets. Please proceed.
Thank you very much congratulations.
Hi.
Good morning.
Front question I was looking at both statement and I know you some equipment, but it looks like you've always been about a 10 million.
In Capex on the cash flow statement year to date, what are your thoughts on capital spending for the remainder this year and may be kind of reached out to next year and how should we be thinking about capex spending.
Yes, so keep in mind when you look at their cash flow statement that we do finance some of that some of our our capital spending with equipment nodes. So if you look at the bottom of our cash flow statement, you will see a equipment finance with notes essentially and so that would be our total.
Well that Youd Wanna add that we could talk offline, but about the numbers are yeah. It's about another 40 billion Jeff Okay. Thank you David but.
But as mentioned in our supplemental or you get it done that to the third Capex range is expected to be 9500.
Billion dollars for the year.
For 2020.
Okay, so that cushion.
That's unchanged from where you were before that basically.
Yeah, we've narrowed the range of the pad.
All right.
And.
Can you talk about what you're seeing on the.
Real estate market are you.
With a lot of the distressed carriers out there that any attractive properties that are making sense to you and can you talk maybe a little bit about how.
Shippers supply chains have been moving around through this whole cobot crisis is that making your rethink.
Geographically, where you might want to be located.
Well we're.
Part of our process, we are constantly reviewing kind of where our businesses and so that's that is an ongoing evaluation that solid real state department until the so.
Bodes well for so they're evaluating properties on a constant basis and including you know maybe maybe a exchanging properties that we have a selling in other words. It never happens from time to time, which made notice we did have a gain on the property sale of this quarter.
And so that happens.
We we move our our businesses around to accommodate where our customers.
Centers or so.
Yes, I mean, I think ecommerce trend is probably driving a a bit of warehouse need is you know its inventory levels made maybe elevated from where they began historically.
Just to accommodate kind of ecommerce trended just more.
Real time for customers as your expectations for deliveries have increased I think there's some pressure on kind of that a warehouse type space.
But that's kind of the the take that I've seen it up.
So my read of.
You know.
Maybe somewhat a little bit different than what you see.
The news, but but it's probably similar so.
Okay got little both along we got a couple of war and try to even before the top the hour abrupt preset just jumping in where this.
Thank you.
Thanks, Jim.
Our next question comes from a Stephanie Benjamin with Suntrust. Please proceed.
Good morning says hi, good morning.
Good morning.
I wanted to touch it on your strategy to bring in you know transactional truckload LTL business. Obviously, it's been very helpful with health with improving some efficiencies during the quarter, particularly with some of the lower volume do you have any kind of plan change of that strategy as we look forward, maybe as the traditional tail business some of those volumes.
Bruce any color there would be helpful. Thanks.
Yeah. It was definitely and you know that the.
Interesting thing about that strategy is that it is nimble and flexible with whatever's going on at the time and certainly we save for our core LTL accounts in terms of being sure that we're servicing them or or making a you know our services available to them, but you know this.
A strategy that that we have been using is really designed to meet the customer where they are what it what it allows us to do with these were opportunities that we were getting before and work just better equipped to take advantage of both in the right instances.
And I mentioned the visibility of a they cost opportunity to make more efficient in the asset based operation and so what I would say is that that is gonna be adjustable depending on the circumstance you know for that that day or that week and <unk> I think.
Our team has really come together I think our yield strategy team is working well with the operations team and making sure that that we make more efficient the resources that were deploying but again, it's a good customer experience because it's meeting the customer where they are it's it's a cloak that they were already involved with and.
We're just able to two meet their expectations and then also a target that where we need it to.
To make more efficient the the network.
Got it I appreciate the time I'll leave it at that thank you.
Thank you Stephen Thanks, Stephanie.
Our next question comes from Sanjay Ramaswami would be obey. Please proceed.
Good morning Sanjay.
Hey, Thanks for taking my question.
Maybe just talking I think in your prepared remarks, Judy you mentioned.
The call us some some color on how you're doing utilizing some lane specific data to fill with truckload graded shipments and you're not giving the cycle inflection in college spot rates.
Kind of provide a little bit more color on on on how you expect got the changes continue maybe the duration of that I'm, giving a more rational LTL pricing environment.
Oh, well actually you know I think that was similar to what the question that I just answered for Stephanie, but you know again work, we're very focused on utilizing that you know too.
Meet the needs of both our network and the customers and you know I think that what you've seen from the core account LTL Ah customers that we have we have good increases. So you know the combination of that I think worked very well in the second quarter, we're seeing that worked well in the month of July where we've seen since stay.
Lengthening and you know I think just keeping those activities synchronized so to speak as really the best advantage that we can have an we intend to continue to do that and and yeah based on the needs that we have in the network and then again meeting the customer need.
As we go forward.
Okay great.
Thanks.
Thank you.
Okay, I think we've got caught for one more if they get the follow up question. Frank you couldn't you that went up.
Well they follow up from the line of Scott Group Wolfe Research. Please proceed.
Hey, guys. Thanks again for the follow up with regard to Panther and kind of the asset light segments.
As we think about kind of overall truckload rate inflation should we think in aggregate about the asset light segment benefiting hurting from kind of higher truckload rates and obviously, an offset in terms of purchase transportation on a go forward basis for earnings.
Well that's an interesting question have you know Rob I think I.
I think it depends what I know that because we have seen a they I mean, just this week. Some you know a areas of the country that are very tight and I think you have to we have to navigate around those and do a good job with that to make sure that they're not deteriorating that met revenue you know that that.
We desire to grow but I do think that as with I. I tight capacity environment are tight earn capacity environment. As we go through the rest of year, you know that will become more recognized by customers and strengthen our ability and a lot of situations.
Where expedited involved are designed that way anyway in terms with the way that that works with the customer contract or the relationship. So yeah. We we would expect that as a capacity is tighter that over time, but that would be beneficial you know to net revenue growth for us.
David did you have anything you wanted to add Noah I would agree with that I just.
Just to your point, nothing Thats, probably where you're going Rob is.
Periods of time, you may have a tightening of the or.
You know tightening of the net revenue margins and then that expanding himself as the cycle moves and as Judy pointed out I think it's about the customer recognition of the market environment that you're playing into it and we're going to get the spread.
Now that that should have been more difficult I think you entertain is it the customer side of that.
Yeah.
[noise], Okay, we'll up like that.
Concludes our call we'd like you could joining us. This morning. We appreciate your interest start best So that concludes our call like slot.
That does conclude be conference call for today, we think two for your participation and as such please disconnect. Your lines have a great day everyone.
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