Q1 2021 ArcBest Corp Earnings Call
Greetings and welcome to the arc Best first quarter 2021 earnings conference call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the for on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Tuesday may 4th 2021.
I would now like to turn the conference over to David Humphrey Vice President of Investor Relations. Please go ahead.
Welcome to the Ark, Best first quarter, 2020 One earnings conference call. Our presentation. This morning, we will be done by Judy Mcreynolds, Chairman President Chief Executive Officer of Arc, Best and David Cobb, Chief Financial Officer of Arc Best.
We thank you for joining us today in order to help you better understand art best and its results. Some forward looking statements could be made during this call as.
As we all know forward looking statements by their very nature are subject to uncertainties and risks for a more complete discussion 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, and the Companys. Most recent public filings by the SEC.
In order to provide meaningful comparisons certain information discussed on this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release, we will now begin with Judy.
Thank you David and good morning, everyone.
I am very pleased to report that we're off to a positive start for 2021.
On a consolidated basis, we recorded our best first quarter operating income in company history, and the highest quarterly revenue of any quarter in our history with growth in all areas of our business.
Our first quarter results also reflect the positive impact of yield strategies and cost control.
We are in a very different place than we were a year ago and that's good news.
In 2020, we had a solid first quarter, but as we close the quarter and entered April we began experiencing revenue declines due to the effects on the COVID-19 pandemic.
However, we were well positioned as we entered the pandemic in our successful navigation those challenges over the past year is really a testament to our values driven culture, and the resiliency and adaptability of our teams.
The demand environment is robust with simultaneous strength in manufacturing and retail providing unusual pressure on supply chains.
Foot traffic to retail stores remains below pre COVID-19 levels retailers have seen strong consumer demand, particularly for electronics furniture and home improvement.
Between COVID-19 historic winter weather events port congestion and the recent Suez Canal blockage customers are experiencing unprecedented levels of supply chain disruption.
At our best we see our business through the customer lens and the benefits of our approach have never been more apparent.
Over the last year and into 2021, we've worked alongside our customers to navigate the impacts of the pandemic and other disruptive effect on supply chains, our sales and customer service teams are aligned with the specific needs of our customers and we use data science analytics.
And technology tools to effectively engage with them.
Our approach allows us to identify the best solutions to meet their changing needs, including unique combinations of capacity we.
We utilize our asset base network as well as our owner operators and carrier relationships to serve them.
We have a three and a half billion dollar growth opportunity for logistics services within our existing customer base.
With respect to new customer opportunities. We are encouraged by the growth of large markets we participate in such.
Such as the L T L and domestic transportation management markets.
We are well positioned to take advantage of these opportunities.
An indication of our strategic progress is our asset light revenue as a percentage of consolidated revenue, which was 36% in the first quarter of 2021 my.
By comparison that percentage was 30% in last year's same quarter.
As this percentage grows art best revenue base better reflects customer transportation and logistics spend also we find that with deeper customer relationships, we experienced greater growth retention and profitability and our asset based and asset light solutions.
To address the growth, we've experienced and to further position ourselves as a capacity resource for our customers. We are hiring drivers and dock workers across the ABF network and additional logistics and technology professionals and roles throughout our best we are taking an earlier than normal look at our two.
<unk> thousand and 22 Capex plans in anticipation of increased purchases of additional equipment for the ABF network to facilitate growth in our business and to allow us to continue to effectively serve our customers' needs.
And we are aggressively recruiting owner operators and contract capacity in our asset light business.
Obviously, we will manage these investments according to the business levels in light of the eventual sick.
Cyclical change to the current momentum in the macro freight environment.
We see solid growth opportunities in this environment and we are focused on taking advantage of them.
And now I'll discuss some additional detail on our first quarter performance of our service offerings.
In the first quarter, our asset based business benefited from the effects of healthy market conditions in the midst of tight industry capacity, we responded to the increasing less than truckload needs of our customers in an effective manner with an emphasis on building partnerships and solving their supply chain challenges.
Yes.
This resulted in the highest first quarter operating income in ABS history revenue totals were positively impacted by strength in the housing market, which resulted in continued strong demand for our consumer moving services the.
The high number of first quarter U pack shipments was not typical and was a result of the effects on the pandemic, which significantly reduced consumer moving activities in last year's second quarter, that's pushing them out to future periods.
Increases in non U pack residential delivery shipments were the result of continued strength in e-commerce activity.
Despite decreases in total weight per shipment associated with the mix of truckload rated shipments in the asset based network increases in average weight and revenue on L. T. L rated shipments was another positive factor contributing to higher first quarter asset based revenue versus last year.
Efficient utilization of ABF operational resources and effective cost management were important factors contributing to higher first quarter profitability.
First quarter freight handling metrics were better and our customers benefited from further improvement in cargo care compared to both last year's first quarter and the recent fourth quarter. These operational improvements occurred despite significant weather disruptions that occurred mid quarter, resulting in the highest number of <unk>.
Curious service center closure days and line haul lane closures in the last 10 years as we did in the second half of 2020. The recent quarter included the use of an elevated level of local and line haul purchase transportation to supplement our ABF network resources.
As a percentage of revenue these first quarter costs were above last year.
We're having some success in adding employees in key geographic areas of need throughout the country. This is part of our strategy for growth, while reducing our purchase transportation usage.
Now the impact of these hiring actions may not immediately lowered the level of purchase transportation, we hope to make progress on that later this year and as we move into 2022.
The strength and rationality of the L. T on market pricing environment is illustrated by our recent success in yield management initiatives that resulted in solid increases in our revenue per hundredweight metric.
This was a significant contributor to improve profitability the average revenue percentage on contract and deferred pricing agreements negotiated during the quarter was the best first quarter in increase in 20 years.
The current L. T L market offers opportunity for us to improve overall account pricing and thus asset base profitability. Our past success has been in providing value to our customers in return for a competitive price and as we began the second quarter, we continued to experience strong.
Demand for our asset based network capacity.
During the recent quarter on.
Our art best asset like business was able to effectively respond to current market conditions that reflects strong customer need for our logistics services and limited equipment availability. This combined with consistent rate stability resulted in the best first quarter operating income in the history.
Art Best segment in fact, it was one of the most profitable quarters of any quarter, we've ever had for this segment.
Solid shipment growth along with a significant increase in revenue per shipment contributed to the year over year gains we experienced in first quarter revenue.
Margins were somewhat pressured by market costs for equipment capacity from our asset light carrier partners. However, more effective utilization of existing personnel and internal resources supported by the benefits of ongoing technologies utilized for our customers and carrier partners.
Allowed us to maximize incremental profit, which resulted in strong operating results we reported for the quarter.
So far in the second quarter trends in this business continued to be good and we are working diligently to meet the needs of our customers.
At fleet net growth in total events during the first quarter was driven by increased roadside repair activity. The first quarter revenue increase reflected higher revenue per event combined with the event growth.
While digital connectivity initiatives continue to contribute positively to greater efficiencies. This quarters operating income was comparable with last year's first quarter due to the investments in personnel designed to maintain a high level of customer satisfaction and to ensure work force consistency.
And now I'll turn it over to David Cobb for a discussion on the earnings results and operating statistics.
Thank you Judy and good morning, everyone. Let me begin with some consolidated information for.
First quarter 2021, consolidated revenues were $829 million compared to $701 million in last year's first quarter a per day increase of 20%.
On a GAAP basis, we had first quarter 2021 net income of 87 cents per diluted share this compared to net income of seven cents per share last year.
As detailed on the GAAP to non-GAAP reconciliation table in this morning's earnings press release, adjusted first quarter 2021, net income was $8 one per diluted share compared to net income of 36 cents per share in the same period last year.
<unk> first quarter 2021, effective GAAP tax rate was 25, 5% and on non-GAAP basis, the effective tax rate was 26, 8% under.
Under the current tax laws, we expect our full year 2021 tax rate to be in a range of 25% to 26% while the effective rate on a GAAP basis may be impacted by discrete items, such as changes in cash surrender value of life insurance and the settlement of share based payment awards, primarily vest in the second quarter.
We ended the first quarter with unrestricted cash and short term investments of $361 million.
And net of debt total net cash of $94 million, an increase of $9 million since the beginning of the year.
Combined with the available resources under our credit revolver, and our receivable securitization agreement our total liquidity currently equals $654 million.
Our total debt at the end of the first quarter of $267 million includes the $70 million balance on our credit revolver and $197 million of notes payable primarily on equipment for asset based operation.
The composite rate interest rate on all of our debt was two 9% consistent with what it was at the end of 2020.
Treasuries Treasury stock purchases during the first quarter equaled $1 million and full details of our GAAP cash flow are included in our earnings press release.
Our asset based first quarter revenue was $556 million in average daily increase of 10% compared to last year.
Asset based quarterly total tonnage per day increased one 8% versus last year's first quarter.
For first quarter 2021 by month asset based daily total tonnage versus the same period last year increased by six 6% in January then decreased by 5% in February due to the severe weather events in that month that Judy mentioned and then increased by three 8% in March.
First quarter total shipments per day increased by two 6% compared to last year's first quarter.
First quarter total billed revenue per hundredweight on asset based shipments increased by eight 8% and was impacted by lower fuel surcharges.
Revenue per hundredweight on L. T L rated business, excluding fuel surcharge improved by a percentage in the mid single digits.
We secured an average five 6% increase on asset based customer contract renewals and deferred pricing agreements that were negotiated during the quarter, which is Judy pointed out earlier. It was the highest increase we've had in many years.
Preliminary business trends for April have been provided in the form 8-K exhibit to the press release.
While the year over year comparison to April 2020 is significantly impacted by the effect of the pandemic and therefore, not a representative benchmark april's preliminary asset base sequential trends versus March 2021, or some of the strongest we've seen in the last 10 years.
In total the revenue at art best asset light businesses increased 43% versus last years first quarter, reflecting the strong demand in our art best segment and improved defense and revenue per event in the fleet net segment.
First quarter asset light operating income was $9 $3 million compared to a loss of $40 $400000 last year.
Adjusted first quarter 2021 asset light EBITDA was $12 $1 million compared to adjusted EBITDA of $2 $5 million in first quarter of 2020.
Preliminary asset light business trends for April had been provided in the form 8-K exhibit to the press release as well as I've mentioned the year over year comparison to April April 2020 is unusual because of the pandemic effect on shipments and the effect of some high margin project business last year.
This morning, we filed an 8-K that included our first quarter 2021 earnings release, along with an exhibit that I've mentioned, which includes some additional information about our current quarterly financial results along with our recent business levels and our future expectations on certain financial metrics.
Now I'll turn it over to Judy for some closing comments.
Thank you David.
First I'd like to recognize Tim Thorne.
President of ABF freight as we announced in January Tim will be retiring at the end of June after a 31 year career with our company.
Jim has been a great leader, who has made significant contributions to our company and had a positive impact on our people.
I wish he and I and the very best in his retirement.
On July 1st Seth Ramser that current Chief operating officer for ABF will become a BFS president.
Seth it's focused on facilitating growth and IVF and ensuring our continued commitment to providing a best in class customer experience.
I've been working with him and sat closely over the last several months and the transition is going smoothly.
I appreciate both of them and their work together to set us up for success for decades to come.
I also want to mention a few recent honors we receive that highlight our important ESG initiatives.
Our employee training program is number 16 on training magazine's top 100 for 2021. This is the 12th consecutive year. We've been recognized on this list and it really speaks to our commitment to provide employees with continuous learning and growth opportunities to help equip them to provide a great <unk>.
Various star customers for.
Forbes included art best among its 2021 list of America's Best large employers and recognized us for a third consecutive year as one of America's best employers for diversity.
Our people and our culture are differentiators for us and we value diversity and are committed to providing a work environment that makes everyone feel respected and appreciated.
These honors recognize our commitment to our people and that makes me very proud.
We were also awarded a bronze medal from Eco Bottas, which recognizes our 2021 sustainability rating now.
On the bronze rating puts our sustainability performance in the top half of all companies and industries rated across the world.
We're very proud of this recognition we are mindful of our environmental impact and we know that sustainability progress as a long term commitment.
Beginning in 2019, we increased our focus on ESG efforts to determine what were doing well and to identify opportunities where we can do more in 2020, we took several steps toward developing a more robust corporate responsibility program and this year, we're continuing to build upon those efforts.
We are committed to continuously improving how we impact our customers our employees and our communities.
Looking ahead, we continue to have a growth mindset, we're focused on strengthening our customer and carrier relationships as we strive to serve customers well as they worked through their supply chain challenges doing so leads to profitable growth for our company and now I'll turn it over to David Humphrey for our question and answer.
Session.
Okay, right I think we're ready to do some questions.
Thank you.
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Our first question comes from the line of Chris Wetherbee from Citi. Please proceed with your question.
Yeah, Good morning, guys.
Hey, Chris How're you doing good good. Thanks, So for you guys are doing well.
I had a question on weight per shipment. So just looking at some of the April numbers that obviously, a big step up here on weight per shipment I think up 8% and Thats clearly, giving a nice boost to the tonnage growth. So I was wondering if maybe you could talk a little bit about the weight per shipment trends that youre seeing and maybe what's driving that if it's a rebound of more for industrial type end market freight or are there other dynamics are playing out.
Do you think that's sustainable as we move forward through either <unk> or the rest of the year.
Yeah, Hey, Chris This is David.
I think you're right I think the just the overall general strength in the economy and business environment that we're seeing is contributing to that.
We've seen.
Across all industries really have good.
Sequential growth kind of on the higher end of that.
<unk> trend that we've seen in the past.
In terms of the weight per shipment I guess.
You know year over year. It was it was down in total, but then we're seeing it.
Higher.
Sequentially in April.
Typically we'll see I guess historical trend slightly down as we move a move.
Move into April and.
And so that's that's in line I think with that what we're seeing there.
But.
I think what we're also seeing is that our or what we would call our published business on our.
Historical LPL rated type business.
Strengthen as we've as we've continued to see that really since the pandemic hit last year and so as we see that that really is kind of a lighter.
Weight per shipment relative to some of this transactional business that we were doing to otherwise fill that empty capacity that we had so when you when you see that movement kind of sequentially. That's that's what we're seeing kind of occurred there that business mix change so.
Anyway, there's a lot of moving parts I would say going on there.
Yes also when Chris when you look sequentially.
Consider the fact that that you know.
When we do more of our U pack moving business that tends to be heavier weight business. So when you're comparing a month like April to March just just as you get into the closer to the summer months, that's a factor too.
Okay. Okay. No. That's helpful. I appreciate the color there.
And I know you talked about the normal seasonality of the operating ratio from from <unk> for 350 to 450 basis points, excluding I guess last year.
I think also if you look at <unk> relative to the full year. There is a sort of I don't know somewhere in the neighborhood of maybe 300 basis points of sort of improvement. If you look back historically, maybe even more than that in certain years.
Is there a reason to believe that this year should follow those normal trends I mean, so should we should see that nice sort of step down in <unk>, but even in <unk>, which was obviously a very strong <unk> for you guys would reflect obviously a good run rate for this year anything specific we should be thinking about in terms of cost dynamics that may come back or otherwise that would potentially influence that normalcy.
<unk>.
Yes, I think one thing and just to just to clear or make sure. We're on the same pages.
We did have those large asset gains in the first quarter.
I think when you do that analysis, you would back that out on the first quarter and but going forward from there.
You know I don't I don't see really anything unusual that would cause our normal sequential trends to be different than what we've seen historically and really I think you probably ought to look at it from under this current labor agreement.
So like the like maybe 2019 and 2018 those comparisons 2020, obviously has a different different animal and probably not worth.
Evaluating or trying to average into that mix.
So but yes.
Okay, Okay, great well, that's very helpful. I appreciate the time this morning, thanks guys.
Thanks, a lot for it.
Thank you. Our next question comes from the line of Jack Atkins from Stephens. Please proceed with your question.
Hey, good morning, guys congrats on a great quarter.
Thanks, Good morning, Thanks, Jack for sure. So so I guess, Judy if I could maybe go back to your comment.
In the prepared remarks around the initial sort of expectations or look around the 2022 capital spending plans.
Think about the level of tonnage on the asset based business over the last five years, it's kind of been pretty constant over that timeframe.
But that comment around additional.
Asset plans for 2022 would indicate that you see growth coming there on sustainability of business trends just based on what's happening on the broader market. So could you comment on the potential for some accelerating growth and some longer term growth that you see maybe in that asset base business over the next couple of years based on your capital plans.
Yes, I mean, I think certainly that the demand environment is robust and we're seeing a lot of good opportunities and I think we're able to work through those opportunities and make sure that we're serving you know our best customers very well and one of the things that we pointed out in the quarter was the use.
Purchased transportation.
And that's in different parts of the business, whether it's in our line haul or in our local operations and when as you mentioned when we see the sustainability of our business.
Plus we want to make sure that our customer service stays on a great place we tend to think about replacing those.
Types of cost with something that we handle ourselves the other challenge that we've had and we've talked about this is it's just the hiring challenge you know last year at this time.
We had about 1000 people laid off and we've we've done well I think adjusting for that.
But it is.
Against the headwind of a challenging environment and so we're.
We're making progress you know we've hired hundreds of people this year so far.
But we also continued to want to hire more and so you know again I think of it not only has increased demand.
And you know us having a great network capacity source for our customers, but I also think of it as as replacing some of that purchase transportation cost and it will take us some time to do that but you know I feel like those two elements are what's driving those comments about 2022.
That's helpful to hear and then I guess for my follow up question.
Judy.
You ended the quarter with about 13.
Dollars in cash per share and can change.
There is the potential you could be closer to 19 or 20 box or maybe even 25% of your market cap in cash by the end of the year. So can you can you talk about how are you.
You are prioritizing using net cash balance.
Is there the potential that we could maybe see some some increased returns of capital to shareholders. As you think about the balance of the year.
Well, we certainly think a lot about the appropriate capital allocation.
And I would characterize what you described is a great problem to have them and hope that we continue down that path and get to make those those really important decisions. So we have a good solid dividend.
And we have a share repurchase program. That's there you know the dollars involved in our 2021 capital and then this discussion that we've had about 2022 are also elements of our thinking and we have our pilot project that we've been working on you know that's in two locations in <unk>.
Indiana and in Kansas City that you know as we see things progress there that could be a use of capital for us as well and so.
All of that plus we continue to stay close to our potential acquisition possibilities in the asset light business although.
It's a very difficult time to think about that given the multiples and sometimes their revenue multiples that are being used.
To really price those companies and so what we hear you and I agree that we've got to make sure that we're being appropriate in the way that we allocate that capital for shareholders and certainly we always consider whether increasing the distributions that we make either through.
Share repurchases or dividends is a consideration in that okay. Great. Thanks again for the time.
Thanks Jack.
Thank you. Our next question comes from the line of Jason Seidl from Cowen. Please proceed with your question.
Thank you, operator, hey, Judy and team good morning.
I mean, Jason.
Wanted to focus on sort of that percentage of revenue in terms of your non asset based business.
I believe your previous goals where to get it to about 50% given the recent accelerated growth in that segment and whats the timeline look now on achieving that 50% Mark.
Well certainly for US we wish we were already there because as you point out that if we if we were it would better reflect our customer spend and that's a key element of that and so I think we're making good progress we're starting to see them you know that that really increase as a percentage.
Of total and.
Although we're wanting a growth in the asset based business as we just discussed we feel like with our size relative to the opportunity on the asset light business. We have a lot more to go there and again, it's it's really relative to customer opportunity.
Things that.
Really working for US now is we have a relatively new leadership and our customer management area I think we announced Dennis Anderson and Steven Leonard as leaders last April and what I love about what Theyre doing is it's much more focused on.
On the customer segments, and they use data and analytics in their decision, making and in the information that we used to really try to target those opportunities both within existing customers and new customers.
And I think that with that visibility, we're able to really deepen the relationships with many customers and identify ones that we would do well with and especially in this environment, we're really seeing that the combination of our solutions and the flexibility of that.
Well with the issues that our customers are facing and supply chain.
Either optimization or just disruptive effects that theyre experiencing so we hope to make accelerated progress on that in the next few years, but you know again.
A great problem to have would be that the asset based business is growing in a way that really challenges that so anyway, but I hope that helps.
It does on it and I hope you guys have great problems to come so.
[laughter] what.
When I look at the industrial market, which tends to drive a lot of <unk> business. It seems like it's starting to come back now at least one of your competitors was on this morning mentioning that.
How should we think about the back half of the year.
The pricing environment right now is really good for the <unk> sector, you've got you PFS rate being taken over by <unk> being very vocal about how theyre going to sort of raise prices there because they've been behind the market could we see a even better <unk> pricing environment in the back half of the year with sort of one competitor now raising ray.
And then potentially increases and the demand on the industrial side.
Yeah, I'll just start with with the you know what.
The environment is there as you mentioned with with the peers and others in the space.
Emphasizing price.
And I think they've also commented that the cost increase and they've got pretty good inflation in their cost.
Fortunately for US we've got a reasonable.
Our union contract at a reasonable cost increase as we've talked about before it's on an annual basis is about 2%.
Including.
Benefit package as well, which is also one of the best in the now in the in the in the business and so our costs aren't pushing us as much as I would say the peers or so but I think the environment is there for it I think the capacity continues to be tight for the foreseeable future the.
The economic trends are or as you pointed out are strong and positive towards dance. So.
Yeah as far as I can see in this.
Looking at <unk>.
Again, we'd like to look at the PMI, it's somewhat of a leading indicator in terms of.
Where that business is going it's been positive and strong. So so we'll continue to watch that as well as all the other economic trends, but but it seems to be a good environment for price.
Hi, Jason I think we're going to move along.
David.
Thanks Man.
Thank you.
Our next question comes from the line of Ken <unk> from Bank of America. Please proceed with your question.
Great Good morning.
So good morning, Judy or David you know given the nearly 9% yield gain you're still not breaking through the 90 day.
The operating ratio at a L. T L asset base, what would it take to get there I guess, if you look back the old for O five yet youll gains that were a little bit lower you still broke the 90 with.
With leverage not be greater now given that and Dave you just mentioned kind of steady cost increases. So what is it possible to get to that level or are the cost structure still.
So much that you wouldn't be able to get there given these pricing gains.
Are you kidding.
What.
I think that could be.
Good problem to have I mean, you know it's.
It remains to be seen but.
This is the environment that.
That we would try to drive for that as I said, our cost per shipment or in a decent place and is the pricing.
Environment is.
Supports supports a good price increase that's good and we're providing value for services and I think the other thing is is that.
We've mentioned this before but.
I think on productivity opportunities are ahead of us as well too.
In terms of.
Just.
Having visibility of the cost having visibility into productivity measures a little better.
<unk>.
And then our yield management around all of that in terms of not necessarily price increases, but but.
You know putting afraid in the right places and and filling our available capacity when it when it is available.
Talk about having the supply.
These imbalances because of customer supply chain imbalances in until imbalances in our network and how that is has caused us to use a bit more purchase transportation and some of that is more costly than we would like to like to have and we hope to work through.
As we as Judy mentioned on our.
Getting some of our hiring and personnel resources in the right place.
And so that that would help towards that as well, but so theres a lot of them want to work through but.
I'd say the opportunity is there.
Yes.
Just add to that can you.
That's.
Something that we are very focused on is just the optimization of our cost I mean, I think what David was describing.
Word that's that's what we're trying to accomplish and and we have again significant efforts toward.
Technology spend that that really is is in the.
City operation in line haul I think with.
Our ability to place dynamic transactional shipments is much more we're much more capable of that because of the visibility that we have and I would just say as we go through time here, we're going to have greater visibility on much.
Much of our business in a way that just allows us to better optimize it whether it's on the cost side or it's in the pricing part of the business or just working to better serve our work with customers that work well.
With us and so you know again, when we do our work cross selling we increase revenue increase retention and we increased profitability and those things affect both the asset based business an asset light and that's just it's a winning formula that.
We're very focused on.
Wonderful and then maybe you could just detail on any of the tech investments for the benefits and I guess, just when you talked about the increased capital you're not adding facilities doors right youre talking about more refining that purchase transportation or are you looking for physical expansion.
Well I mean, we could we certainly anticipate doing both but the comments that I made are more related to the equipment side of things, but you know we do look for opportunities to make.
Make sure that our facilities are appropriate in the number of doors are appropriate and you know, but I would say on balance the comments that I made are related to equipment or other spending related to optimization opportunities.
Thanks, Matt appreciate it yes, you got it.
Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks, good morning, guys.
I just got started on I wanted to start on pricing. So one of the <unk> talked about renewals of 9% I guess do you see an opportunity to get there or is your point that we've got less cost inflation. So we're not pushing as hard on price.
Maybe some of the others.
Well I would I would just maybe on women it wouldn't couch it that way I would just say that we are.
We're going to price for value and price in the market appropriately.
But I agree I mean, I think our cost or are in a very manageable place.
And we've had a good benefit package for our employees. So that's all on a good place so but again, we're going to we're going to get what the market would provide I think there.
For our customers well and day.
COVID-19 I would add that that you know when in an environment like this your best opportunity for overall improvement earnings per share improvement is to have volume growth and appropriately price and so you know what what's good about it is the ability to evaluate those opportunities on that basis and make sure that.
Sure you're accomplishing all of that and the demand is such that we're seeing.
I think the right opportunities to look at and we can look at that balance and make sure that.
We're satisfying our best customers, let's just say yes.
Okay, and then is there any way to try and quantify the impact of weather in the quarter and I guess I'm thinking about it from this perspective, if we kind of.
Exclude those larger gains on sales given sort of weather in the first quarter and I think he said.
One of the best sort of sequential March to April as you've ever seen right I'm guessing that again, excluding those gains that we should probably be thinking about the sequential margin improvement better than normal.
But.
Once you if you have any thoughts there.
Well I would I would just say that whether it's.
Did impact February pretty pretty rough for us.
On of the worst I think we've seen in a number of years, but as we you know we had a decent march bouncing back from that I think it's hard to sort of sort through whether or not that.
Overall significant impact on us for the for the quarter from a profit standpoint, I think the bigger thing to think about in the first quarter is probably the property gains that we had.
In terms of trying to normalize the sequential or comparison.
Okay, Alright, thank you guys.
Thanks, a lot Scott.
Thank you. Our next question comes from the line of Todd Fowler from Keybanc Capital markets. Please proceed with your question.
Hey, great Thanks, and good morning.
Hey, good morning, everyone. So Judy just kind of around the narrative about.
Thinking about growth going forward does this feel like that this is filing in an environment, where you can grow volume and grow tonnage that we really haven't seen in the past couple of years and continue to get the yield improvements in the contract renewals that we're seeing on.
Or is it maybe a little bit of a message that maybe there's.
Less of the lever to push on the pricing side and now is the time to kind of growth in tonnage on the network.
You know I wouldn't say it was the latter I mean, I think that may be overstating, it but I do think that it's important to acknowledge that we've done a lot since 2017 to address our overall yield in the business and the on time, particularly the asset based business and so I think you have.
To keep that in mind and.
For us the.
Alonge with really trying to accomplish a lot of growth in the asset based business is going to come from some of the hiring challenges that we have and you know in other other.
Other constraints like is that more so than it would be.
On anything else I mean, I think we look at the opportunities that we're seeing and we want to service them well, we want to be sure that we're doing that particularly with good customers that are long lasting customers and that's really first order of business is to make sure that we're positioned well to do that we do want to grow and.
I think that as we go through the year our success in hiring.
Is going to help us better understand how well, we can do that and it's going to be an interesting period here with the peak season, but stepping.
Stepping back from it I would say, it's it's an environment, where you can look at those best opportunities and make sure.
That you're optimizing them in the network and I think we've been doing that for some time now and it's really a testament to our team and the coordination that we have with sales yield and operations to make sure that we're handling that well and that included the significant disruption that we.
Since February with the winter weather you know that's that was.
One of those things, where everybody has to come together and make sure that we handle it well and move through that so.
If you think about the last.
Year all of the challenges of the reductions in business that we had in second quarter on coming into third and fourth quarter with more robust trends and then now where we are I'm really proud of the resiliency and adaptability of the model that we have in that business.
On the quality of our people plays a strong role in the success that we've had and that we will have.
Yes that makes sense and I knew the way I asked that.
You weren't going to agree with us that kind of a general comment, but it was more like you said all of the pricing work that your team has done over the past couple of years in moving the yields up and positioning yourself for growth going forward. So I appreciate that so maybe just for a follow up Judy if you can comment on kind of where you see the network balance right now I know that you've done a good job on.
Balancing available capacity with some of the higher weight higher weighted spot truckload shipments is that back at a normalized level and do you think that kind of underlying demand is where it should be that you kind of see normal weight per shipments and just sequential tonnage patterns going forward. Thanks.
Yeah, Todd It really I mean, I think some of that is is hard to predict but I want to say too that the L. T. L. Transactional business that we're doing is obviously driven by some of the empty capacity issues that we've had over the past year, but it's also a risk.
Sponsors approach to our customers. It's the channel that some customers want to do business in and so you know as we move forward.
That piece is going to continue to play a role in what we're doing and we're and we're glad to be able to do that it's created by visibility on both opportunities in the network as well as better connecting with those customers.
So.
I think that all of that has to be considered when thinking about this.
Yeah got it okay.
For Yeah, I, just wanted to say congratulations to Tim Thorne, David for you.
Yes, absolutely for.
For Tim and his next phase for sure. Thank you for saying that yes. Thanks guys.
Thank you. Our next question comes from the line of Jordan <unk> from Goldman Sachs. Please proceed with your question.
Yes, hi, good morning.
Hi, Jordan.
Alright.
Not sure if you addressed it but given that that our profitability and asset light any thoughts on where margins can over time get to and when you think about the services customers are asking for there.
That's driving the top line can you maybe highlight a few of the key T spot.
Yeah.
Well, yes, it's a great question and.
We've said over the past few years that we're targeting.
About 5% margins there operating margins and really just looking at kind of best in class operators of asset light service line.
By comparison, but that's certainly a in our minds achievable and I think having the first quarter come in like it did really kind of helps us think about that what over time, we're continuing to invest in technologies and enablement.
Our people so that they are more efficient well that was one of the.
Things that really stood out to me whenever I looked at the first quarter is how much of the revenue really dropped to the bottom line and that really speaks to they.
I think the leverage but also you know the effective training of our people and you know and we added quite a number of people to that business during the first quarter.
And so so we have technology working for us and we're going to continue to pursue that as well as you know training and development of people said that they're up and running and working more effectively quicker.
But at the same time I think the the elements of that business you know ground expedite obviously has been a contributor to the success that we saw on the first quarter on into April and our managed solutions really doing well in this type of environment, where customers are in a way.
Hey, just ready to have a lot of help in managing capacity sources to their advantage.
And then you know.
On the truckload opportunity continues to be there for us to aggressively grow that business and you know and frankly, that's one where you know we have some opportunity to improve the profitability and I think with our techs.
Technology initiatives that we'll be able to do that over time, but you know all of that.
Over time should lead us to a margin that's like I described and hopefully we would be better be able to better that even but you know we've got to get there first.
Great. Thank you so much.
Thank you.
Thanks Jordan.
Thank you. Our next question comes from the line of Stephanie Benjamin with Truest. Please proceed with your question.
Hi, good morning.
Good morning, Stephanie.
Got it and just on.
Really a follow up for the last question I had.
I'm curious just as Youre looking at your overall tech initiatives planned for this year I'd love to hear on and as you touched on some of this but I'd love to hear how you think some of those impacted just the current quarter and then as you look forward, maybe technology opportunities for customer and carrier matching on that fully digital front anything on the.
L T L side with just dock productivity.
I think kind of even wrapping it up looking at your strong cash balance for the year is there an opportunity to maybe make some pretty incremental investments on technology.
Just to kind of improve on overall productivity that'd be helpful. Thank you.
Great question Stephanie.
I mean it is.
You sound like us sitting around talking when.
When you're looking at the asset light side of things.
We have some technologies that allow.
Our people to on demand really.
Evaluate multiple solutions for for shipment handling with our customers and the reason I bring that up first is because in this disrupted environment. Its just not always clear to a customer which route they should kind of what type of equipment. They should use what solution they need in order to best serve their needs.
So when they're looking at.
On the service that they need and perhaps the profile of the freight or the characteristics of the shipment they need that kind of helps so that's really helped us and that's that's been in development for many many years. We also have a freight matching platform that includes you know auto shipment awards to partner carriers that have given us their preferences in there.
<unk> and.
We're continuing down the path of greater automation, there and are tracking and tracing technologies have advanced and.
Our focused on even greater visibility both for us and decision, making and then also the customer just to know the status of things.
And one of the beauties of having I think assets involved along with these solutions as we are headed toward a place where we can look at capacity.
As kind of day.
The potential solutions that are involved and help a customer navigate or maybe even automatically.
Sign the best capacity source in a given circumstances, so we're connecting with more of our customers.
We connect every day with customer Tms systems that allow us to take.
Take on those orders and appropriately assign you know carrier capacity in.
I think that our advancements as we go forward is with them.
<unk> dot com, just allowing more self service options.
By our customers and so that's really that the asset light summary on on the asset base side.
We continue to see opportunities to have you know a more optimized network and we've been working toward that over the last two or three years optimizing things like light lanes, you know and and then our city routes. We're just in the early stages of getting that to a more automated place and theirs.
A lot of ground work that had to be laid before we could actually accomplish that of course are a L. T. L. Transactional business is a great example of technology, that's being deployed to the customer advantage in the business and.
There's so many more.
And then I think you mentioned utilization of our resources for those maybe those bigger tech projects to really on leap to a new place in the future and that's certainly on our radar screen as well and I think I mentioned earlier.
The pilot work that we're doing in the asset based business.
In Indiana, Indiana, and Kansas City and to the extent that we see good results there there's.
Some capital for that in our 2021, but it could influence.
That's what we do in 2022 and beyond.
Hope that helps.
Absolutely no really appreciate all the color as always thanks, so much guys. Thank you.
Beverly.
I think we've got time for one more question.
Thank you. Our last question comes from the line of Jeff Kauffman with vertical Research partners. Please proceed with your question.
Thank you very much hi, Judy day Iga every.
Hey, Thanks for squeezing me in here you on here.
Good to be back thank you.
Well all the really smart questions have been asked at this point. So let me just kind of throw some straightforward ones that just wanted to follow up.
The one thing we want to be careful about here I think is not building the church for Easter Sunday, so to speak and.
<unk> business is just fantastic and the market capacity is tight and I think that sustained itself, probably a little longer than people think but.
What is going on that you're concerned about we don't want to over build additional capacity here versus what is happening out there that you think there is a fundamental structural change.
Yeah, I think you're you've been through about as many cycles as we have David Humphrey David kind of scary.
Yeah. So when you think about.
And so you know I think.
As well as we do the importance of keeping that in mind and I think I made a comment in my opening statement about being mindful of.
The the eventual size.
<unk> cycled change, which we can't really predict when that's going to happen, we'll know that there's weakness coming I mean that manufacturing PMI index tends to be a good leading indicator for us by about four to six months, but you know there are a number of things that are out there.
That we're mindful of and you know the change I think in in tax policy.
Some of the inflationary factors that are being discussed and you know just on.
Certain the impact of those but I'll, just say with respect to that.
I think you know as well as we do that.
We have the mechanisms in the I think the intelligence to be able to know that if we have those kinds of cost increases that we have to think about passing those along but there's a limited.
Ability to do that if you're starting to see weakness I think of retailers and the tight margins that they have in their business and that's why I think it's so important for us to be seeing things through the customer lens, because it helps us to view them.
Our our selves in on optimized fashion and so we've got all of that on our minds and we know that if inflation were to take hold that that could be a dampening effect on demand ultimately and we've got to watch for that and be mindful of it but I think when.
When I think about the asset base business in particular, if we were to have a more robust capital plan. In 2022, you know it really addresses certain specific things, maybe the age of our city trailers and and making sure that we stay on top of our tractor.
On a average life, so to speak and and there are some cost inefficiencies that we're trying to solve with the purchase transportation level that we're having to utilize and so.
Really I think if you think of it in that regard.
That just makes the company more sustainable as we go through any environment and that's really what we're focused on.
Okay. Thank you if I could get the follow up in more of a strategic nature.
This company has a tremendous history of growing businesses, and then recognizing value and I am just thinking more recently clipper and tread co.
But I look at what Youre doing in asset light and <unk> got tremendous growth I think the theory is when it gets to 50 per cent of revenues may be investors reward the company with a higher multiple but I'm not sure that there's a guarantee would that then I look at X P O, which stocks' nearly doubled.
They said, okay, we're going to engage in strategic discussion and now we've decided to separate the contract logistics business or are there strategic reasons why asset light has to be a part of the parent company can you achieve many of those same benefits if the business for stand alone. It I'm just thinking about ways to.
<unk> valuation differential.
Well, it's an interesting question and of course, it's on on.
People's minds, because of what you've seen with ex P O and I'm really not speaking to their specific strategy as much as I am hours when I say that this what I'm getting ready to say and that is it the asset light solutions that we have in the way that our customer management team is approaching the business.
This along with the asset based network is highly integrated and it's really very beneficial to both of them. For instance, if you know if we have a L. T L customer, which you know right now that's a really robust environment growing and.
Lots of excitement around that but there are customers that at certain points will want to do something that is further optimized from that specific mode and what we recognize is the ability to have that conversation with the customer make sure that their supply chain is as optimized as it can be.
And to participate in that as a partner rather than standing outside of that and having whatever inevitably happens happens to us and so I think what we've learned through the different strategic steps that we've taken is just how beneficial that is now.
You know how this business is things obviously change over time, but you know when we look at the next <unk>.
Several years, we see that strengthening our company and the relationships that we have with customers on our ability to serve them and so we think of it in a very integrated and beneficial way.
So it's one plus one equals three is your view to have it in house.
Well congratulations on a fantastic quarter and thank you.
Well. Thank you Jeff. Thanks, a lot good to have you ratchet licensee Youtube.
Thank you for readout.
Uh huh.
I think that concludes our call. We're at the end of the hour and so I just wanted to thank everybody for being with US and we look forward to talking to you in three months. Thanks, a lot. This concludes our call.
Thank you that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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