Q3 2020 ArcBest Corp Earnings Call
Greetings and welcome to the Arcbest third quarter 2020 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we'll conduct a question and answer session. After time. If you have a question you can press the one followed by the forerunner telephone if at any time.
During the conference you need to reach an operator, you can press star zero and.
As a reminder, this conference is being recorded Tuesday November Threerd 2020.
I'd now like to turn it over to Mr., David Humphrey Vice President of Investor Relations. Please go ahead.
Welcome to the best third quarter 2014 earnings Conference call.
Our presentation. This morning would be done by Judy Mcgrath <unk>, Chairman, President and Chief Executive Officer of <unk>, Best David Cobb, Chief Financial Officer of Art Best.
We thank you for joining us today.
To help you better understand art Bastianich results. Some forward looking statements could be made during this call.
As we all know forward looking statements by their very nature are subject to uncertainties and risk.
For a more complete discussion of factors that could affect the company's future results. Please refer to the forward looking statement section of the Companys earnings press release, and the company's most recent FCC public filings.
In order to provide meaningful comparisons certain information discussed in this conference call includes non-GAAP financial measures. It's outlined in described in the tables in our earnings press release, we will now begin with Judy.
Morning, everyone and thank you for joining us for our third quarter earnings reports.
<unk> Best you will hear us talk about our vision, we'll find a way and that appropriately described is what this year has been like for us and what our employees are seeking to accomplish.
I'm incredibly proud of our team for fighting through a pandemic weathering the associated recessions and being ready to respond to increased demand as our customers business as quickly come back on line.
2020 is an extremely you make here and the challenges everyone face going through the first half of the year fit in contrast to what is played out over the last few months.
2020 is also filled with good examples of customers utilizing our integrated solutions to their advantage our transformation into a provider of choice and a leader in little bit the logistics industry. It's purposeful and also responses to the complexities faced by our customers and indication of our effectiveness in.
Serving customer needs is our third quarter in October a sequential revenue trends, which are some of the best in our interest our history.
We closed out the third quarter with 32% of our revenues from asset light solutions and on a preliminary basis in October that person edge further improved to 34%. Our October progress is even more encouraging when you consider that our asset base business is growing at 9%.
We are proud to serve our customers always but especially during these volatile times.
In addition to improving revenue trends, we are encouraged that our third quarter consolidated non-GAAP operating income increased 20% year over year, and 82% sequentially and represents one of the best third quarter performances in our history.
Solid execution by our employees is enabled by a number of technology and analytics advancements that increased operational efficiencies and improved responsiveness to customers and carriers in the channels they desire.
David and I are looking forward to going through the third quarter results in more detail with you today.
During the third quarter, our asset based segment benefited from sequentially, improving economic trends and the resulting positive impact on our customers businesses. Many of them are returning to more normal shipping patterns and during the recent quarter, we were able to effectively serve their needs. Although average daily shipments in the IB F. networking.
Priest sequentially, they decreased versus last year's third quarter on.
On a year over year basis, our higher weight per shipment was driven by several factors, including the improving economy changes in customer mix. The addition of larger LTL shipments designed to fill available empty capacity in our system and increased demand for our household goods moving service at this time, we are not seeing.
The impact from traditional truckload shipments spilling over into our LTL network as these truckload shipments decline on a year over year basis.
As we experience during the most severe period of the pandemic our E Commerce business was strong in the third quarter compared to the previous year as consumers continue to purchase a variety of products that they receive and use in their homes strengthening trends in housing were another positive factor that generated both year over year.
And sequentially sequential quarterly increases for you pack, our consumer residential moving service.
The pricing environment remains solid and rational during the recent quarter.
Though our total third quarter asset based revenue per hundredweight was below the prior year. The decrease was related to shipment and account mix changes and lower fuel surcharge. The increase in shipment size. I mentioned earlier was also a factor in reducing our total yield metric, but that was offset by the positive effects of an increase in ad.
<unk> revenue per shipment.
Our traditional pricing discipline combined with our evolving use of lane specific information that helps and adding needed shipments in the right place at the right time forms a solid foundation for our asset base business that we laid on especially during uncertain times like we've experienced this year.
Our operations team has executed extremely well during a period when we have managed through an entire freight cycle in a matter of only six months, the resulting ups and downs or tried to match labor resources the business levels during such extreme swings and shipment counts and certainly presented its challenges we had to quickly reduce labor.
Resources in the second quarter, and then rapidly increase them as business returned in the third quarter I am very proud of how well we've maintained year over year improvements in most all of the important operational metrics and measures that we closely follow.
As customer business levels began to return and the need for transportation services increase during a period of time carrier capacity in the marketplace demand for our asset light services contributed to revenue growth and higher operating income.
Despite a slight decrease in total average daily shipments during the quarter greater revenue per shipment highlighted by increases at expedite truckload and manage drove the top line revenue growth.
Because of market conditions purchased transportation costs were a higher percentage of revenue that's pressuring margins, however, and efficient cost controls enabled by technology advancement in all other areas of the business resulted in an increase in operating profit.
Ground expedite benefited from higher demand associated with our customers need for reliable timely transportation services and from the environment created by challenges they experienced in securing the equipment capacity they must have our.
Our truckload brokerage was also a positive part of the third quarter revenue growth, but the challenge of matching customer charges with rapidly increasing mileage rights for carrier capacity pressure truckload margins as.
As many of our customers are emerging from the worst of the Pandemics impact on their businesses. We continue to have opportunities to help them navigate the changing trends and their supply chain and their need to service their customers in unique ways. As a result growth in managed transportation services was another positive country.
Hi, Peter to asset light revenue and profit improvements in the recent quarter.
Year over year revenue growth in our managed business. So far this year is significant and is on top of the strong growth we experienced in this area last year.
Athlete that a reduction in both roadside repair and preventative maintenance events, primarily resulting from lower demand contributed to reduced third quarter revenue compared to last year reduced event count also contributed to lower operating income during the quarter.
Next I would like to ask David Cobb to go over the earnings results and operating statistics.
Thank you Judy and good morning, everyone. Let me begin with some consolidated information.
Third quarter 2020, consolidated revenues were $795 million compared to $788 million in last year's third quarter, which was flat on a per day basis.
On a GAAP basis, we had third quarter 2020, net income of one dollar an 11 cents per diluted share.
This compares to 62 cents per share last year.
As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release.
Adjusted third quarter 2020, net income was $1.22 cents per diluted share compared to one dollar and two cents per share in the <unk>.
Same period last year.
Our best third quarter 2020, effective GAAP tax rate was 24.9%.
On a non-GAAP basis, the effective tax rate was 26.2%. We currently expect our full year 2020, GAAP tax rate to be approximately 25%.
While the effective rate in the fourth quarter may be impacted by items discrete to the period.
Well details of our GAAP cash flow for the third quarter are included in our earnings press release at the end of September our cash and short term investments balance totaled $351 million, our total liquidity, including our cash and borrowing availability under existing facilities with $644 million.
A financial covenant ratios under our credit facilities improved during the quarter and continue to be in a solid position.
You'll recall that in March as a proactive measure to increase our cash position and to preserve financial flexibility at the beginning of the pandemic, we borrowed an additional $225 million that consisted of a $180 million from our credit facility and $45 million from our accounts receivable securitization facility.
July we repaid the 45 million bald and Youre securitization in August we paid back the $180 million in the credit facility.
Late September we paid an additional $40 million that eliminated all of our borrowings under the or securitization.
As a result of these actions our total debt at the end of the third quarter 2020 was $292 million, which included 70 million on our credit revolver no borrowings on our securitization in $222 million of notes payable primarily on the equipment for asset based operation we.
Good positive interest rate on all of our debt was 2.9%.
Combined with our cash balances we ended the third quarter with net cash of $59 million compared to net cash of $41 million at June ended the second quarter, an improvement of $18 million.
We may treasury stock purchases during the third quarter and have repurchased over five and a half million dollars of our stock. So far this year. These purchases combined with our quarterly dividend enhance our shareholder returns.
Our asset base third quarter revenue was $562 million compared to $566 million last year.
They decrease of 1%.
Asset base quarterly total tonnage per day increased 1.2% over last years third quarter.
By month for the third quarter asset base daily total tonnage versus the same period last year decreased by 3.9% in July increased by 3.7% in August and the increased 4.5% in September.
Total shipments per day in the third quarter decreased by 3% compared to last years third quarter.
Third quarter total billed revenue per hundred weight asset they shipments decreased 1.8% compared to last year and was impacted by freight mix changes and lower fuel surcharges.
Excluding fuel surcharge the percentage decrease of billed revenue per hundred weight asset based LTL.
Ladies at freight and it's in the low single digits.
Asset based customer contract renewals and deferred precedent agreements negotiated during the quarter. The average increase was 2.5%.
Pricing on traditional published LTL rated business, excluding fuel surcharges and this this piece that does not include transactional LTL rated shipments increased by percentage in the mid single digits.
On an adjusted basis, our asset base third quarter operating ratio was 92.4%.
He basis point improvement versus the 93.2% in 2000 Nineteens third quarter.
200 basis points sequential improvement compared to this year's second quarter outpacing historical sequential operating ratio trends on the significant revenue growth versus second quarter.
Earlier this year in response to rapid decrease in business levels related to the penta. Nick we took decisive actions to reduce costs that include laying off many of our driver and freight handling personnel.
The AIDEA freight network.
As we move past the worst of the business declines that occurred in April we began experiencing rapid sequential monthly business increases, especially during the may through August time period.
As a result, we have undergone overall staffing challenges in the asset base network, particularly in certain specific locations.
During the third quarter in order to maintain customer service levels, we need to increase our use of outside resources in both line haul local city pickup and delivery operations, thus increasing purchased transportation expenses.
We continue to be challenged adding needed resources.
Some specific locations, we have generally seen success in hiring the people we need moving.
Moving forward, we would expect that customer business levels in our employee resources will continue to stabilize relative to each other and that our use of purchased transportation will moderate accordingly.
For October preliminary asset base, the statistics versus last year or as follows.
Asset based billed revenue per day increased 9% total.
Total tonnage per day increased 10% total shipments per day increased 1% total.
Total billed revenue per hundred weight decreased approximately 1% again impacted by lower fuel surcharges in freight mix changes, including the effect of heavier shipments.
Excluding fuel surcharge pricing on traditional published LTL rated business, which does not include transactional LTL rated shipments increased in October 2020 by percentage in the low single digits compared to October 2019.
Total weight per shipment is up 9% in October reflecting strong demand for our household goods moving business. Our LTL rated weight per shipment increased 11%. This reflects strategic additions of heavier LTL shipments in certain lanes the profile changes driving a lower revenue run rate metric in the midst of a rational pricing environment.
In recent years, the historical average sequential change in Arcbest asset based operating ratio in the fourth quarter versus the third quarter has been an increase of approximately 200 basis points.
In total our data revenue in our combined asset light businesses increased 5% versus last year's third quarter, reflecting a revenue increase in the Arcbest segment lower revenue at Fleetnet.
The total asset light business operating income was 5.8 million in the third quarter compared to operating income of 3.6 million last year with the increase primarily primarily.
Primarily due to increased total business levels, particularly in our expedite business.
In addition operations were more efficient benefited from cost controls and use of data and technology.
For October asset light revenue for the Arcbest segment, excluding fleet net is 31% higher on a preliminary basis compared to the prior year month of October driven by high demand for our ground expedite truckload brokerage services, resulting from tied equipment availability in the current market.
So far in the month purchase transportation expense as a greater percentage of total revenue in the asset light business, which will result in overall margin compression for the month, you compared to October a year ago.
Regarding our consolidated results the year over year comparison comparison of consolidated operating income was impacted by expense accruals for certain non union performance based incentive plans, which were higher by $8.5 million compared to the prior year quarter.
The increase is due to improved results primarily reflect reflects the timing of recognition as the first half of the year was impacted by the COVID-19 pandemic on operating results.
Because of the strong third quarter results more incentive costs were appropriately recognized during the third quarter of this year compared to historical patterns.
We attribute our success during 2022, the dedication and adaptability of our workforce in the Arcbest culture that unites our people behind its shared set of values. We recognize the sacrifices our employees have made during 2020 personally and financially to serve our customers through the pandemic and find a way to solve their changing needs.
Needs.
We have continued to reevaluate our cost savings actions related to the pandemic.
Economic recovery has progressed and our financial results have become more certain.
This morning, we announced at our best we will be providing onetime discretionary payments to non union personnel for the 15% wage reduction incurred by our non union exempt employees during the second quarter of 2020 and to provide a bonus to non union hourly employees, whose I was reduced during that same time period.
We recognized $7 billion of expense in the third quarter, while 4 million will be accrued in the fourth quarter for these payments.
This morning, we filed an 8-K that included our third quarter 2020 earnings release, 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.
Now I'll turn it over to Judy for some closing comments.
Thank you David what a difference six months has made.
As people all over the country make their way to the poll to the polls today I can't help but think about what it means to cast a vote and want to honor. It is to be the recipient of one.
In a very similar way shippers and capacity providers do the same thing when they choose to do business with Arcbest.
They choose arcbest because they know they are going to get a good customer experience that includes solutions for all their logistics needs.
Regardless of how unique a shipper situation, maybe we have access to the right capacity and the will to find a way to get there gets moved wherever they need to be and when they need to be there. So.
The same can be said for our capacity providers, who trust us to match them with the loads. They want when they want them. This focused on doing what is best for our customers as part of our customer obsession and it is ingrained in the culture. We have built here at Arcbest is also at driving reason behind why I am so optimistic about what.
The future holds for this company tremendous opportunity exists for us to sustain the momentum of the third quarter and continue to profitably grow our company by deepening our customer relationships utilizing data and technology in our operations and integrating innovative solutions in our services is a strength and abilities.
Of our workforce and our leadership team that will seize upon this opportunity for growth as we head into 2021.
And now I'll turn it over to David Humphrey to conduct our question and answer session.
Okay, Keith I think we're ready for some questions.
Or if you'd like to register for a question you can press the one followed by the four on your telephone.
Three tone from technology request. If your question gets answered you wish to withdraw you can press one three.
And again Thats one for to queue up.
Our first question is from the line of George Gallagher from Goldman Sachs. Please go ahead.
Yes, hi, good morning, everyone.
Hi, Jordan job on the morning on that on the cost side of the equation and I'm. Just wondering if you could talk a little bit about having a.
Sustainability controls I know you have to bring back people, but sort of exclusive of that.
As you look ahead to 2021.
The operating ratio one assumes that the bulk of the industrial manufacturing recovery now still lies ahead or how do you think about.
Margin progression as we look into next year or maybe said another way can we improve upon.
What you've already done thus far this year.
Well Jordan. Thanks for the question, we certainly always strive to improve upon what were currently doing and I think.
The thing that has been a really interesting to watch as we've seen this year unfold is just the flexibility and adaptability of our.
Employees and just.
Just the resources that we provide to add.
Customer needs in different environments, and so you know that's particularly encouraging when you think about what next year holds because we don't always know what that will be and that's something that we constantly talk about it the company just how difficult it is sometimes to know.
Where things are headed to but you commented about what's going on in the manufacturing sector and we are encouraged by that I think yesterdays.
Manufacturing PMI index was a positive and typically when we look out four to five months, that's impacting our results and that's encouraging and.
And then also we commented on this call about the positives that come with the housing environment, improving and you know we are seeing sequentially. Some good trends on the retail side, although I know you know theres going to be some no.
Difficulty with some businesses there, but you know the E. Commerce trends, we are seeing are good as well and so we've got all that backdrop going on and at the same time I think within the business, we're seeing more opportunity for greater visibility as you know just the units of work that our employees.
They are doing and how to better manage that are optimized that and then the coordination that we see at the needs and the asset base network or with our carrier partners to.
To be able to match that up with the.
The business that we have opportunities for with customers is really at a heightened level and I'm I'm encouraged by that as well so.
We're constantly working to try to improve and we see a lot of opportunity to use.
The foundation that we've laid here to do that as we move forward into the next several months.
Thanks, just one real quick follow up the October strengthened tonnage year over year, obviously very strong.
Quickly, though as we go forward from here I mean November December I.
I mean.
I have is all year. So I'm just trying to get a sense for how to think about maybe a progression or is this a typical.
Our atypical progressing tonnage coming here in November and December.
Well I'll I'll take the first part and then David I think we'll have something to add I mean, yeah. The October when you compare that to September I, you know that the trends there for I think revenue shipments and tonnage or maybe the best we've had in a long time and maybe ever and you know the.
It's just a really I think interesting environment with certain areas strengthening and again some of that is because of the decline that you had in the second quarter you know in the this pandemic recovery period, but you know.
I'll I'll say that and then I think David will probably talk about some of the comparisons back to last year I think if you we we had some.
Generally easier comps and when you look forward into November and December.
November being down I want to say around 11% then soon right David in.
In tonnage.
I'm sorry so.
So yes, it's there's a lot of lot of what could happen. Obviously, there's a there's an election going on and then spend in it but we are encouraged by the momentum that we're seeing right now.
Okay, Hey, Thanks, a lot I will turn the Norton breached right.
Thank you.
The next question's from the line of Jason Seidl from Cowen. Please go ahead.
Thank you operator, Judy David David everyone. Good morning, Jason Hi, Jason.
This is kind of piggybacking, a little bit of what Jordan said I mean, Judy you brought it up you said this might been the best October ever and if you just look at on a sequential basis you never have the same amount of tonnage total tonnage in Fourq you as you did in threeq or at least in my model goes back 20, some right I think that I'm not saying it.
But you know you mentioned I think David mentioned that the normal sequential move in a war is up 200 points, but I.
I don't think we're going to see that again based on your tonnage levels and also the fact that I think David mentioned that you accrued 7 million for some of those payments for your employees in Threeq, you and only for ligand is going to be in crude.
In Fourq you how should we think about like a logical move on the whole our threeq to Fourq you because to me I don't see it being 200 bips worse given current trends.
Well I appreciate your optimism Jason.
[laughter] alright.
Yeah, Yeah, it's encouraging to see I think that what we're seeing in October from revenue trend and that momentum continues I mean, there's something there about that.
What do you think about July for instance July revenue per day was down 6% versus last year's July. So we're you know we're starting off at a good place and.
And the revenue per shipment trends are favorable but.
As I mentioned, there's there's many uncertainties with the economy and the potential covert impacts and political environment.
But.
Yes, as you pointed out you were astute to pick up.
Some of those accruals that we have.
But.
But by and large I think where we've we've got some good momentum.
Okay, well I was trying to fish out some direct commentary.
I guess the other thing I want to look at just conceptually and you brought up where your purchase transportation is and I appreciate that a lot of the brokers that have reported talked about threeq being sort of the worst quarter they've seen in terms of the speed of that the transactional market win against them for a lot of their contractual.
Well it seems that the spot rate went against them for a lot of their their contractual business.
And so as that as spot sort of levels off and doesn't exactly take the hockey stick up that it did in threeq is that going to help margins in that business in fourq versus threeq.
In the asset light business.
Thanks, there's potential for that to occur as we're able to source our capacity at.
As as that capacity pricing or is the market pricing to our customers.
Catches up to that capacity pricing.
That can't happen Thats right, yes.
The other thing that I was thinking about though just you think about elements that make capacity.
Relax or tighten further and one of the things that I'm interested in is the vaccine distribution and what impact that has and when that is and we really don't know we know that our ground expedite business will likely play a role in that but just as you were asking that question.
I was thinking about what does that do to overall capacity tightness for instance, in the fourth quarter and <unk> and you know that's an interesting thing to think about.
So, but you know I think what we think about with our asset light businesses, where we're really.
Trying to add more I guess deeply penetrate the customer relationships that we already have and gain some business there with new opportunities and we're at various stages of that with different customers you know whenever you've gotta mature relationship, perhaps it's one thing and.
And as Youve got a new relationship. It's another so you know as we grow I think there will continue to be particularly in truck load. Some pressure on the margins I think in expedite theres an opportunity for something better, but some unique things that are coming from this pandemic that that caused me to yeah, I guess I have cautious optimism.
About that that's what I thought you did you did you guys have a contract to move the vaccine.
Well no, but you know were a source of capacity for for that and we're in conversations with different distributors and customers and you know there's still a lot of unknown about the timing and the and the the plan, but you know I've been a mindful about when I think about.
Ground expedite business in the readiness for that and then again the overall impact than it could have on capacity well I think we all are adjacent to shore take care guys. Appreciate it thanks, a lot Matt sorry.
The next question is from line of Jack Atkins with Stephens. Please go ahead.
Hey, great. Good morning, everybody. Thank you for taking my question.
Hey, Judy Hey, Judy you David David So.
I guess you going back to your comments in your prepared remarks about the productivity gains and the investments that you guys have made there and automation to drive improved network efficiency I mean, when I kind of strip out the $7 million in bonus costs from the third quarter, you guys are kind of getting back.
To that third quarter, 2018, Omar and at a lower tonnage level. So can you maybe kind of walk us through where you are in terms of those automation and productivity investments and sort of what's to come in 2021.
Yeah, I mean, I think when we step back and look at the asset base business and what has transpired you know we've been building network optimization software for the last two years and we we completed certain phases of that in the fourth quarter of 19, and we're starting to see that in the numbers.
Whether it's light lane software load point planning those kinds of projects have really helped us and we've got more of those in the Hopper you know as we move forward.
The interesting thing too is just the close work with the yield on some of this transactional LTL business.
It really has been responsive to customers and the channels they want to do business, but for instance in the third quarter. It helped us reduce empty miles by about 16% and its also helped our city route density and and again I commented earlier about the productivity improvements which for some.
Makes it from this but also I just think our our software and our tools to more tightly manage you know they activities. There has has helped us.
Yeah, we introduced a mobile dispatch system that was implemented late in 2019.
Is helping us to better communicate with our drivers.
Messaging and automated alerts and it's also improving our customer experience. So we've we've really seen.
Seeing some impact positive impact of those kinds of things and again I'm I'm. Most pleased about the coordination of our yield.
Reasons and addressing customer opportunities while at the same time, creating operational efficiency all that has has.
Again played out in a year, where we've had some extreme ups and downs in business because of the pandemic.
Absolutely, it's it's really encouraging to see that.
I guess my follow up question.
If I could ask about yield trends when I when I look at the commentary on contractual rate renewals there was a little bit of a deceleration there versus what you saw that in the in the second quarter.
You know versus appears that that's on accelerating trends and obviously everything we're hearing about capacity in the LTL networks out there thats very tight could you maybe talk about.
What you're expecting to see in terms of contractual renewals as we move into the fourth quarter into 2021 would you expect to see that number accelerate.
Well you know I think yeah, when we look at what happened in the third quarter I'd, just remind you that some of the conditions that are our customers. We're in I mean, we had a lot of businesses that during the second quarter close or we're at.
A place where they really weren't in normal activity or normal modes of things and so what we were doing was being patient in waiting for some of the contractual renewals that arose naturally during say the second quarter months, you know in some of those were deferred or pushed out into later months of the year and.
Some of these companies are not in a great position themselves and so you know all of that is in mind, plus I think on top of a lot of actions on our part with CMC and other price improvement actions that we've taken over the years, the which I believe had been a pro.
Procreate to make sure that we're getting paid for that space. That's used on the trailer, but you know all that's in place and then you have the environment of the pandemic and what that means to those negotiations and so I wouldn't take you know a lot of instruction from the third quarter's results just by itself.
I think you have to look at what we do over longer periods of time and you think I think you would agree that we're very disciplined in this area and I would continue to expect us to be and where we're always reviewing the profitability of our counts and the opportunities that we have but we also know what a good long term customer looks like and.
We appreciate having them and you know I think that part of that was present as you look at the third quarter results.
Okay.
Hello, Thanks, a lot David.
Got it.
The next questions from the line of Chris Wetherbee from Citi. Please go ahead.
Hey, Thanks, good morning, guys.
Hi, Chris.
So wanted to touch maybe on the resources in head count in particular, so David I think you mentioned.
You're generally able to sort of hire the people you wanted to I guess, maybe getting a little bit more specific for Fourq. You can you give us a sense of sort of what you need for the fourth quarter in terms of headcount and maybe how that kind of factors into that sort of historical progression seasonally low are from threeq to fourq you.
Well I think the.
As you saw in our as I mentioned, we had some elevated PT.
To handle you know when you think about these.
These business volumes that were really.
Volatile in terms of the decline and then the rapid increase in the other interesting thing about the way that business came back is that it's not even across our system. So in other words, we have certain geographic locations that have.
A bigger a bigger resource need it.
It is bigger business volume return.
Than others, and so when you have that sort of imbalance across the network.
It requires us to use.
Some outside resources just to serve our customers in certain areas and so.
It is you know it's easier or.
Or two to find appropriate risk people.
In different places and it is certainly the pandemic has has.
Let's put a challenge on just just our normal recruiting efforts, we'll just say.
Well and to that point, we had I think at the highest point about a thousand of our labor employees on layoff and today that number is less probably around 100, or so handled by but to David's 0.1 of the statistics that we gathered.
Advancing this call was this 72 service centers experienced double digit growth.
For allocated weight and 53 service centers experienced double digit decline more than 50% of our locations experienced double digit year over year swings in their business levels. So you know that that's a part of this whole story, that's really interesting and so I think what we're looking to hire.
Yeah, I think it's it's in a lot of places, but does areas, where weve had the declines are not so not as much you know there's not as much of a need there as we move forward and certainly the business levels are ahead of where the.
Hiring has been in terms of overall employee count and you see that reflected in our purchase transportation utilization, but a lot of that.
You know a lot of that issue is because of this imbalance issue that weve seen so worst we're trying to work through a lot of things here. Thanks.
Thank goodness, we have the ability to use rail and road power to be able to help us balance and we'll probably see less of that as time goes on and as we hire but it's.
It's a it's a process that we have to go through to get more imbalanced, including our customers are getting more in balance that's right and those would be kinda back to your I think your question in terms of.
Incremental costs sequentially, it's those I would say I would view more as offsetting so as we were able to.
To do that work internally.
It may be actually an opportunity for us to to lower overall cost per shipment no.
No.
Okay. It's certainly more thank you.
Enabling more ideal yeah.
Hi, Chris.
Robert.
Not a problem banks may as I appreciate it.
[music].
The next question is from line of David Ross from Stifel. Please go ahead.
Yes, good morning, everyone I'll try to avoid a high for you hook.
Yes rod.
The clock is ticking.
No I know I know.
One is just talking about the network now that.
It's not a downsizing exercise tonnage is growing again, where does the facility count stand today and do you think that.
You're going to be up or down on number of terminals in 2021.
Dave I think there's probably relative stability there is what I'd say.
I think our current count is maybe 241 facility or something like that.
But you know I think theres relative stability there one of the things when you're you've been in business for almost 100 years, you really have more of a longer term perspective on some of these things and certainly we're going to react if we see sustained business growth that causes us to really.
Invest in those resources.
But until we see things I think become more settled through this pandemic period and that sort of thing is it's a little bit hard to see what is.
Going to be continuing but I like being in a growth mode and we're focused on that and we have some room to grow certainly I think it was mentioned earlier that were you know at lower lower tonnage levels than we've run through a similar system and so that you know as I mentioned earlier with the imbalance of where we've seen growth in where we've seen.
Declines in business you know some bids some locations are certainly tighter than others and that's a part of the equation too.
Thanks, David as we look at the 2021 is there any.
Any need for I guess lumpiness in the Capex.
You know any preliminary thoughts on facility expansions that may take that capex number higher than our otherwise would be or should it be more of a replacement year with the fleet.
Yes.
Thank you we'll go it's a good question you know we will Oh.
We will as we normally do provide us an update their capex plans for 2021 in when we release our fourth quarter results.
I guess, maybe think about that in terms of when we started 2020, our original Capex plans were.
We estimate was around 135 million to 145 million in so.
Beginning the pandemic, we lowered that from those original plans and our current expectation is around 90 to 95 million for this year. So.
So.
I would think think of that in terms of we want to maintain a replacement cycle revenue equipment, we want to continue or other maintenance items and strategic investments. So so probably a higher level than 2020, and maybe a point to gauge would be.
That estimates that we provided at the beginning of the year is a starting point, but it will be to finalize those plans and you think about that and then you know as as Judy said, there's tightness in certain areas in the real estate as certain certainly always a consideration as we develop our capex plans.
Excellent. Thank you thank.
Thank you Amanda let's say you.
The next question is from line of Ken extra with Bank of America. Please go ahead.
Hey, good morning.
Okay.
So just maybe following up on on the capacity question on from from Chris, But if you maybe talk about what capacity you have to absorb that 10% growth in October and if that continues how do you adjust to adjust aspect as Dave noted that PT costs will subside and then why is truckload down given the tight spot.
Market.
I thought you get the flow down from that and the interesting question well you know I'm I think whenever we look at some of our labor planning for instance.
You know our shipments are have not moved up as much as as the as the tonnage or the weight and so I think that helps us from a resource ability to handle that and again, we talked already talked through the elevated purchase transportation, which as you know a combination of rail and and wrote power you know that we're utilizing there.
And you know I think I think that's an interesting you know.
Thing to think about as we move forward, but I feel like that we can handle that okay and that remind me of the second part of your question.
The truckload in this call, yes, that's right I would guess it yeah. It is a it is an interesting thing that we're experiencing here. We're actually seeing you know I I think an opportunity to have more LTL transactional shipments, which you know we are focused on and bringing on some some new relationship.
Ups and then also servicing some existing ones and you know I think it really is more a story of the availability of that than it is the truckload spillover. So we just wanted to be sure to to point that out as we're looking at year over year, and we just see that.
That's a more optimized answer for us because of the network needs that we have in the empty capacity needs that we needed to fill was to utilize those LTL transactional shipments, which we you know we feel good about the overall result that that had and how that coordinates well with the published business that we have.
And then real quick for your.
Your thoughts on data tech investments or are we seeing that scale, if capex is staying well yet.
And well it will I think Kens question was about.
Smith.
Let's spend on Tech Tech investment, yes, no. So we're we're fully invested there and want to continue to do that I mean, that's a that we're seeing the results. So think of of investments that we've made over the years in our results and so.
We continue to to invest in both software and hardware items and.
And I think thats going to be in our Capex build as we plan for gambling on one thing that can then I would say is is that you know our our tech spend as a percentage of revenue we feel like is on par with other companies that we compete with and that what's interesting about it is we feel like that more of our spend goes.
To what we would call strategic investments rather than just run the business that's what our comparisons show so yeah, we're really.
Happy about that and we feel like that's a that's a great thing for advancement.
He said I flock to answer very much. Thank you.
The next question's from the line of Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks morning, guys. So I just got Scott I'm, just I just want to go quickly go back to that last point about truckload spillover I thought the October updated that T.L. spot shipments were up double digits is that not.
Truckload spillover.
Oh, you're talking about are in the asset light pieces of business.
I I thought I'm, just reading in the double digit percentage increase in truckload rate and spot tonnage moving in the asset base network and Oh, well that is more of the argue pack business. We that you pack business that we do is truckload right. It.
Okay. Okay.
Okay, it's not what I think when when the thought is about truckload spillover. That's not conceived in that thought is is that it would be you know you pack moving business. So yes, that's that's what's driving that.
Okay, and then just a couple of bigger picture questions. If we look over a 10 year period.
I think you had never had I know are better than 97 in the LTL business and now we've got three years in a row 93 to 94 on or what do you think is the right is there is there are new range to think about for your LTL margins through a cycle and then just separately I saw a presidential memorandum.
Around pensions and just wondering your thoughts there and what to what that outcome for you guys is it yeah, well I think you know that that's certainly a part of that Oh, our range. We know for sure but you know one of the things that we've noted is that we have had nearly 350 basis point improvement in the operating results.
For the asset base business since 2000, Sixteen's recession, and I think we would all agree that this period here is certainly more difficult to navigate them glut. What was there in 2016. So you know that is really I think noteworthy for us and does I think create a new rate.
Range and thinking on the operating performance for the for the asset base business and you know I mentioned earlier some of the the visibility and management tools and optimization as well as the coordination with a yield strategy in terms of the best business that we could have in.
The network and I really think that that's a strong contributor.
To the improvement there and you know we've always had an opportunity for it more consistent.
Results and I think that's what I'm very focused on is trying to create greater consistency, whether it's quarter to quarter in terms of seasonality in the business or if it's in the cycles and I think you know.
That's my objective.
Objective and I think if we were to accomplish that I think we could see further improvement in the operating performance for the asset base business and then on top of that it would be more consistent and you know again technology analytics advancements visibility and then great execution on all of that comes together.
As a part of that story.
Okay. Thanks, a lot Scott appreciate your band.
The next question from the line of Todd Fowler from Keybanc. Please go ahead.
Hi, great Thanks, and good morning.
Tom could you just I feel good morning, Hey, good morning, everyone. Just on the thoughts on pricing and really it kind of dovetails in with what you just talked with Scott about on being more consistent.
Because you guys have done just a really good job throughout this cycle in being disciplined with pricing. How do you think about the range of contract renewals you know over the course of the next cycle is it something where maybe it's not as high as what we've seen in the past because you've been more consistent or is there still the opportunity to to go out and get high single or low double digit contract renewals on some.
Okay, Great and then if you could also just dovetailing some thoughts on a GR I know you guys typically don't need but is this an environment, where we could see a sooner or GE or I, just given some of the freight dynamics. Thanks.
Well you know I think when you think about the contractual renewals I'm you know I think the I don't have it in front of me, but the history on that which would show you or tell you that it would be pretty unusual to be in those high single digits.
I I think that's pretty unusual although you know I think we've made a lot of progress over time and you look at maybe some comparisons that we would have back to pre 2017, the cubic minimum charge action that we took you know it would you know the improvements that we've had would be.
Pretty dramatic, but you know I think that.
When we look at it you know it's a combination of business that's good for us and works well for us in the network as well as being responsive to what customer needs are and you know I think for for that period of time, that's up coming here I think companies are businesses in general are are.
Not in their optimal range of profit margins and I think what's going to be on their minds is that they've got to continue to keep their logistics costs in check and that's one of the reasons why I like our strategy as well as I do because you know we're able to bring.
Variety and solutions to it given circumstance and bring that together in a way that perhaps overall reduces logistics costs for our customers, but also gives us the payment or the increased level that we need you know for a given solution and so.
But I do I do recognize it over longer periods of time, you know logistics I think for our customers is a strategic weapon for them and I think they're very focused on it and I think they've seen a pretty good size increases and this year's going to be a very disrupted year for them. So they're going to be focused on you know trying to.
Get to a better place and that's again why I like our integrated solutions that we bring to bear our that we offer you know that creates greater consistency in business from a customer, which we always benefit from but it also helps US you know accomplish both of those goals one that's really customer.
Focus and the other that's focused on our improvement in costs and profitability yeah.
And I'll just add that it's like you hear it and duties moist just the interest in from the customer's perspective, and that's that's really.
Our vision and reason why we see a long term sustainability and.
Our program here soon.
Yeah, Okay that helps and then just any thoughts you care to share on this year I would be great. Thanks.
Yeah. The G. G R. I Ah, yes, David do you want to comment about that well just now just as.
As a reminder, you know we had a 5.9% back in February of I think around February 20. There is lack of late February of this year and then.
The previous February early February we did another one or.
The one before that so you know.
It's a.
We're always our yield folks were always monitoring the customer relationships out of that so let's.
Try to determine when it's the right time for GE Orion were typically not going to be the first in the market place the announcement on but to this point, we haven't made any decisions about that.
That timing and so we'll evaluate input from our sales group and their discussions with customers and.
As Judy mentioned, all the disruption that our customers are experiencing we want to evaluate that consider that in all these decisions.
All right fair enough. Thanks for the time. This morning. Thank you. Thanks, a lot Todd.
The next question is from the line of Stephanie Benjamin with Trust. Please go ahead.
Hi, Good morning, Hey, Judy Hey, David I know indefinitely.
Hi, I wanted to talk a little bit about the asset light margin improvement I think you guys demonstrates a pretty efficient cost control, particularly given the higher purchase transportation costs could you talk a little bit about the sustainability of those cost controls how we should think about that they go into the fourth quarter and then.
2021, and just any effort you have made I know a lot of efforts on the asset base side to improve the margin profile, but love to hear what's been going on behind the scenes and asset light side. Thanks.
Yeah, I would just say that I think with what you see there is some reflection of of our technology and how we're doing a number of things systematically and digital digital tools that we put in place Stephanie and so that's helping us there and.
We want to.
You know our focus is to sort of minimize the transaction cost related to.
To those loads and so it's.
It's good to see that we've got a long ways to go there we've got.
Efforts around just this fool backend.
Touchless sort of transaction that we want to get too and Weve rebates from advances that we've got some ways to go there I would say.
You know again shipment visibility in.
So you know just automating that tracking for our customers and carriers in connecting those carriers electronically with our with our loads and.
All those initiatives have advance but.
Yeah I've got another example that I think is you know this work sharing is yeah, we're using AI to read emails and to categorize email and that helps us with acting on them quicker helps us with the customer experience, but it also for instance, if there if it's an email that's directed at.
That a document that's needed we can deliver that without a human being involved but you know so that's an example of what we're doing that is you know I think automation or add.
And at a minimum its enablement of our people, but you know we still strongly believe in the value of a human involvement in our customer relationships, but we're trying a number of things to enable our people better and to have the more routine b.
[noise] addressed biotechnology answer and where it's more complicated or or where they came in at a intervention or our involvement is important we're doing that as well yeah and then just.
Only a just attracting more shipments that's that's an area that we're also looking at growing I mean, we've done some of that but.
So from just obtaining those customer quotes.
Booking those.
Through our IPO through.
Through our RCB dotcom.
Nexion that's a.
That's an area that's going to hopefully advances will all.
Our understanding two of customers and the channels they want to do business and is advancing and we're trying to direct our resources in an appropriate way, we see a lot of opportunity there for that piece of the business to grow.
Got it really appreciate all the color. Thanks, so much thanks, Seth Okay. Stephanie Thanks, a lot well listen that's all well folks that we've got a lined up for question. So I guess that ends our call. We want to thank you for joining us. This morning. We appreciate your interest in our best and this concludes our call like slot.
That will conclude the conference call for today, we thank you for your participation and you can now disconnect your lines.
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