Q2 2021 ArcBest Corp Earnings Call
Okay.
Yeah.
Greetings and welcome to the Arc Best <unk> 21 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 1 followed by the 4 on your telephone.
At any time during the conference you need to reach and operator. Please press Star Zero as a reminder, this conference is being recorded on Monday August 2nd 2021, I would now like to turn the conference over to David Humphrey Vice President of Investor Relations. Please go ahead Sir.
Welcome to the Ark Best second quarter 2021 earnings conference call. Our presentation. This morning, we'd be done by Judy Mcreynolds, Chairman, President and Chief Executive Officer of Arc, Best and David Cobb, Chief Financial Officer of Arc Best.
We thank you for joining us and will really help you better understand and art best and its results. Some forward looking statements could be made during this call as.
As we all know forward looking statements other very nature are subject to uncertainties and risks for.
And 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 company's most recent SEC public filings.
In order to provide meaningful comparisons certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables and our earnings press release.
We will now begin with Judy.
Thank you David and good morning, everyone.
And as you saw and our release, our second quarter revenue increased 51% over second quarter on 2020, when we were impacted by the economic factors and the COVID-19 pandemic.
I'm very pleased to report that we achieved the highest quarterly operating income and art best history and record quarterly revenue and we've had our best first half ever in terms of consolidated revenue and operating income. These records reflect our success with customers as a leading logistics come.
And with assured capacity options. So far this year, we are experiencing strong customer demand, resulting in shipment and tonnage growth and I'm very positive on the industry pricing environment.
On a non-GAAP basis, our second quarter asset based operating ratio was in the eighties for the first time in many years and our asset light profit grew substantially.
As we entered the third quarter customers continue to experience high levels of supply chain disruption and we are effectively adapting our approaches to their needs 2021 has been the year for customer conversations regarding the basketball elastic solution for their supply chain and our strategic positioning over the last.
Decade, and enables us to grow with them as their businesses recover.
We have a data driven approach and the visibility we have ensures proper alignment of art best resources with customer requirements. We are focused on listening to our customers, which helps us be more agile and responsive and to know when it's necessary to pivots and new solutions.
As I mentioned, we anticipate growth and our business our opportunity pipeline has grown significantly year over year through the first half of 2021 and accelerated sequentially and the second quarter compared to the first customer win rates are reaching all time highs in order to address this growth and serve.
Our customers, we are increasing hiring and recruiting efforts optimizing the ABF network, including line haul dock and city operations, taking delivery of new ABF equipment, and placing 2022 orders early expanding ABF facilities do investments and upgrades.
Increasing recruiting resources and equipment for our expedite and truckload fleet.
And investing and various technologies, including those to make it easier to match shipments with available capacity.
Speaking of technology, we continuously invest in technology and innovation to improve operations and further enable a best in class customer experience.
Innovation is more than a mindset for us it's simply part of everything we do and now I'll turn it over to David Cobb for his comments.
Thank you Judy and good morning, everyone.
And just as a reminder, our year over year comparisons to last year's second quarter were significantly impacted by the effect of the pandemic.
Some of them and begin with some consolidated information.
Our second quarter 2021, consolidated revenues grew 51, 3% to $949 million compared to $627 million and last year's second quarter on.
On a GAAP basis, we had second quarter 2021, net income of $2.27 per diluted share this compared to net income of 61 per share last year.
And as detailed in the GAAP to non-GAAP reconciliation table on this morning's earnings press release on.
Our adjusted second quarter, 'twenty, and 'twenty, 1 and earnings per diluted share grew 194% to a dollar and 97 cents compared to 67 cents per share and the same period last year.
Our best second quarter 2021, effective GAAP tax rate was 17%.
During the second quarter the rate was impacted by several items identified and the effective tax rate reconciliation included in and tables to the earnings release.
Large discrete items included the sale of a portion of the asset like moving business and settlement of share based payment awards that vested during the quarter and changes and cash surrender value of life insurance.
For the first 6 months of 2021 the effective tax rate on a non-GAAP basis, which was used to calculate the non-GAAP EPS was 27% on.
Under the current tax laws, we expect our full year, 2020, 1 non-GAAP tax rate to be and a range of 26% to 27%.
Of course, the effective GAAP tax rate may be impacted by discrete items that it could occur during the remainder of the year.
We ended the second quarter with unrestricted cash and short term investments of $423 million and total debt of $238 million.
<unk> and cash net of debt of $185 million and increase of $100 million since the beginning of the year.
Our debt at the end of the second quarter, which totaled $238 million includes the $50 million balance on our credit revolver and our $188 million of notes payable primarily on equipment for asset based operation.
The composite interest rate on all of our debt was 3%.
Our cash and short term investments combined with available resources under our credit revolver and our receivable securitization agreement provides total liquidity of $662 million.
The increase and our net cash position is primarily driven by our solid operating results and timing on capital expenditures. The original build schedule you know as well as delays from manufacturers for our asset based and asset light revenue equipment has the majority of the units being delivered and the second half of the year.
As a result, our capital expenditures net of asset sales totaled only $15 million for the first 6 months of the year. We currently expect net capital expenditures to range between $160 million and $170 million per year. So we have some catch up coming in the second half of the year.
And that Capex range includes some additional facility upgrade opportunities that we plan to complete in 2020.1.
Last quarter, we also mentioned and accelerated view of our 2020.2 revenue equipment plans in order to increase our fleet and support of customer demand as Judy described earlier investments and upgrades on our asset based network are a priority.
Customer management structure and technology platform are leading yield management program combined with logistics solutions together place art, best and an increasing number of customers supply chain conversations thus improving customer retention.
These factors have driven us to have greater confidence and our shipment and revenue growth through business cycles.
We recognized that we have opportunities to invest and our facility capacity that will generate solid returns and.
And the last year, we have moved into a new leased distribution center in Kansas City and have committed to another distribution center and Salt Lake City. We're currently working on expanding and updating 10 other leased and owned locations and we're also expecting to allocate additional resources and the range of $50 million to $75 million on on annual basis above our historical capex.
Levels toward expanding existing service centers as well as upgrades that would also improve energy efficiency.
And as I mentioned, a portion of our investments are included in our updated 2021 capex, but many of these projects are longer term and will impact 2020, 2 and future years.
As we have discussed before we are seeing our customer centric approach of providing logistics solutions pay off as more customers increasingly rely on our team for supply chain expertise.
Art best acts as a trusted partner and understanding and responding to our customers' needs. This approach allows us a more strategic perspective that we can leverage on our customers' behalf through intelligent analytics and access to capacity across multiple modes of transportation, whether through our own assets or through other providers.
So continue technology investments and capacity additions advance our ability to serve these needs.
Likewise, we are staying close to transactions and the logistics space and are mindful of the opportunities and acquisitions can provide to add scale to our platform for serving our customers capacity needs.
Along with these opportunities to invest and positive net present value projects. We continue to return capital to shareholders with a dividend program and share buybacks. These are good opportunities for utilizing excess cash as we believe that our share price is undervalued and should trade higher.
Earlier this year, we extended our share repurchase program, and we repurchased $7 million and our stock during the second quarter.
Full details of our GAAP cash flow were included in our earnings press release.
Our asset base second quarter revenue was $653 million and average daily increase of 42% compared to last year.
The second quarter, non-GAAP operating ratio and the asset based business improved 440 basis points sequentially versus the first quarter of 2021, but adjusting for the large property sale gain and the first quarter. The asset based business produced a 600 basis points sequential improvement.
Is it based quarterly total tonnage per day increased 22, 7% versus last year's second quarter for second quarter, 2020.1 by month asset based daily total tonnage versus the same period last year increased by 28, 9% and April increased by 21, 3% and May and increased by 18, 7% and.
On June <unk>.
And quarter total shipments per day increased by $13.5 per cent compared to last year's second quarter.
Second quarter total billed revenue per hundredweight on asset based shipments increased 15, 4% and was impacted by higher fuel surcharges versus last year.
Revenue per hundred weight on L. T L rated business, excluding fuel surcharge improved by a percentage in the mid single digits.
We secured an average 6.7% increase on asset based customer customer contract renewals and deferred pricing agreements negotiated during the quarter, which was 1 of the highest second quarter increases we've had and many years.
This compares to the 5.6% increase we secured on these customer pricing agreements during the first quarter.
Preliminary business trends for July had been provided in the form 8-K exhibit to the press release July daily average tonnage and shipments were above the prior year month by percentages and the mid single digits and.
As previously mentioned the asset based business managed and elevated level of household goods U pack shipments during the second quarter.
And these shipments are larger than the typical L. T L shipment and stay in our system longer as customer demand for our core L. T. L services continues to strengthen we have moderate the number of these U pack household goods shipments as well as other spot quoted shipments in order to serve our growing base of principal customers.
As a result, the sequential change and daily average tonnage from June and July was below our historical average because of this greater than average sequential decline in these heavier iupac and spot shipments.
And importantly for our core L T L business and sequential changes and average daily tonnage.
And and revenue per shipment were higher than historical averages.
As a reminder, beginning in mid third quarter of 'twenty 'twenty.
We experienced significant demand and year over year growth and these larger U pack shipments going forward, our tonnage and shipment comparisons to the prior year were expected to be impacted by this unique element of our business as we continue to manage the network to serve our customers and optimize revenue.
In total the revenue and art best asset light businesses increased 67% versus last years second quarter, reflecting strong demand and our art best sudden segment and improved events and revenue per event and the fleet next 7.
Second quarter asset light operating income was $16.3 million compared to $2.1 million last year.
We sold the labor services portion of the art best asset light segments, moving business during the quarter, resulting and a gain of $6.9 million.
On a non-GAAP basis, excluding the gain on net sales second quarter asset light operating income was $9.3 million.
Second quarter, 2021 asset light EBITDA was $19 million, including the benefit of the moving business sale compared to EBITDA of $4.9 million and second quarter 2020.
Preliminary asset light business trends for July and been provided in the form 8-K exhibit to the press release.
Uh huh.
Net a form 8-K that was filed this morning with our earnings release included and exhibit that I mentioned, which include some additional information about our currently 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 over the past several years, we've purposely integrated our solutions. So that we can more effectively serve and partner with customers and this approach is serving us well and driving growth as we strengthen relationships with customers and carrier partners, while also creating new.
And relationships, we are 1 of only a few full service logistics companies with both asset and asset light capacity sources, and we have almost 100 years of experience adapting to changing customer needs.
Today, we are well positioned to meet those needs and exceed their expectations. It's important to us that we meet the customer where they are and and the channels. They desire and looking forward. We know the rate of change will continue to accelerate but we are demonstrating agility that is enabled by listening to them.
Customer and desire for unique logistics solutions is very important and staying closely in tune with expectations as they evolve will position us for continued success, we are confident and our strategy and the underlying strength of our business and we're focused on positioning aren't best for long term growth in any environment as.
And I mentioned last quarter, we've taken several steps toward developing a more robust environmental social and governance program as an update we are currently compiling our latest ESG report, we've hired a corporate social responsibility program manager, we are developing our diversity equity and inclusion strategy and roadmap.
We are consolidating our data into a more usable format. So that we can establish environmental goals and we are undergoing a materiality assessment project. Our goal with the assessment is to prioritize our long term initiatives across all aspects of ESG.
We strive to be a responsible corporate citizen and all of our communities and we've always been committed to conducting business and a highly ethical way.
We are committed to more publicly documenting and our actions in regards to sustainability employee wellbeing community involvement governance and ethics.
I also wanted to say a word about our team members are people drive our success and they are the strength of our values driven culture, creating a differentiator for our company.
I'm very thankful for our thousands of great employees, who are dedicated to helping customers and living out our values every day and now I'll turn it over to David Humphrey per our question and answer session.
Okay, Frank I think we're ready for some questions.
Thank you.
And if you ever like to register a question. Please press the 1.4 on your telephone you will hear at 3 tone pump technology. A request. If your question has been answered and you would like to withdraw your registration. Please press star 1 followed by the 3 and 1 moment. Please for the first question.
Our first question comes from adjacent Seidl with Cowen and company. Please proceed.
Thank you operator, Judy and team Hope you guys are good. This morning wanted to get a sense for this U pack business.
And we're saying, it's going to rollover and bid on comparisons without putting any direct numbers on it how should we think about the profitability of that type of business versus your traditional core core network business.
Well and we typically haven't disclosed.
And that specific information about really any of the segments of business.
And but you know that the what I would point out to you is historically for many many years I think we develop out that business back in 1997.
And you know it's peak season has been 1 that begins maybe in late April and runs through mid September something like that and just like what you would normally think and I think 1 reason why we can we bring it up is because the net trends have really shifted since.
The pandemic and we've experienced some strength.
In periods, where we typically wouldn't and its a spot quoted business. Its a truckload rated spot quoted business.
And that when combined with our non U pack residential shipments and tends to equate to about 11 or 12% of our shipments and that's been fairly consistent over many many years and I think what we're pointing out is as our published business are.
Core L T L business strengthens and again this is a hot spot quoted business. So we can manage it and we have managed it down some whenever you look July to June and I, just think that's important and whenever you're looking at the sequential trends and incidentally.
The core business trends are very good. So we wanted to make sure that we gave you that color. So that you can understand and demand strength that we're experiencing.
Alright, so all in all a good thing because you have to strengthen the core business.
Well, Yeah, I think so and you know when you look at and.
And all of our business options, we have more than ever and it's it's interesting how we can work through that in a way that optimizes. Our the business that we would like to and its fortunate for us that we have these these spot quoted businesses that we've experienced good success for them.
And here's.
Okay, that's great color.
On a.
On a follow up David you talked about.
Additional capex for.
And proving a lot of other facilities, you said 50 to 75 million bucks above normalized levels.
And you said, it's going to be definitely and 22 is just going to continue beyond 'twenty 2.
And is it all facilities are just on the non asset based logistics side.
Well.
And you know we.
As Judy mentioned, we're seeing a tremendous opportunity I think and kind of our longer term business.
And just.
What we're feeling from customers right now as part of it but.
But we've we've done a lot of things in terms of over the years and technologies and changing the structure of our customer management.
And and the yield programs that we have in place. So all of this is really about our I guess our R. R.
And our confidence and our ability to grow and so that would suggest right now booking at this $50 million to $75 million number is on an annual basis. The timing of that I think is going to be you know.
In the year, we haven't pinned that down for how much is going to fall into 2020..2 at this point and we'll give you updates as we know more but this would be you know primarily and our asset based network is what we're looking at here.
2 to upgrade those facilities and hopefully expand many of them.
And so a lot of opportunity there. So we are.
And as those real estate projects are longer term and and.
Some places we're challenging too.
To get into you know, we may have to use them leased.
Facilities on certain cases, we would want to buy it could but.
But anyway, that's hopefully that helps.
No.
And it does and I'll look forward to the updates on on just how many facilities are upgrading and the type of door expansion and we're looking at.
Thanks, a lot Jason appreciate it and I have every time guys.
Thank you.
Yeah.
Our next question comes from Mccann Hector.
And with Bank of America. Please proceed.
Great Hey, Judy Dave Dave Congrats again on.
On the AR on the Best Award and 15 years, So, it's a definitely and price.
Thank you.
You did note in the 8-K that third quarter should be similar or it and stay in the eighties, maybe just give your thoughts Judy on or Dave on on sustainability at this level and and thoughts going forward.
Yes, well first of all Ken and I want to point out that we gave you the history. There we're not actually giving you the guidance of that but I know, where you're coming from and we do have good confidence about R. R.
And on.
You know that the customer and demand and the opportunities that we're working through and yeah. We are when we look at our overall business is really on.
Interesting the way that it's evolve, particularly with our strategic direction that we've had over the last 10 years.
When we approach customers, we approach customers as a logistics company and we see the opportunities really are growing and it's interesting.
And those conversations it's great to be a company that is very capable and other ones. We have multiple ways that we can achieve a result per customer, but it's also important to have you know that the assets involved in that conversation and it's really the overall logistics approach, that's bringing US you know these opera.
<unk> and increasing our confidence in terms of both profitability and retention and you know I was looking back as I was preparing for this call let some things.
And that we've done and the recent years and thinking about the impact of all of that and if you think through.
And just just the actions that we've taken since 2017.
And we put in place and.
Cubic minimum charge with made sure that we weren't getting the right value so to speak on those more bulky shipments that were taking up more space and the trailer and we also have introduced.
You know a transactional L T L, which is helping us and fill empty capacity and helping us with imbalanced and the system.
We have a increased as David mentioned and visibility on those opportunities you know the advanced analytics that we use and the tools that we have you know to really help us with the right business and and focus are at given periods of time really helps us with I think a more resilient business model a more sustainable.
<unk> business model and you know the the hiring that we need to do and that we are doing is really something that is providing a I think a unique circumstance, but also a significant challenge and it's so it's really really important that as we bring people on that we're bringing.
I'm on to stay with us for a longer period of time, and and we put a lot into that with training and development of our people and we wanted to provide some consistency to them as well as ourselves there and so.
You know all that to say I think the the the overall approach that we use today versus what we had in place and you.
You know in 'twenty and meet them.
2015, and 16 range, it's just a I think 1 that improves our profitability.
Improves our visibility and and <unk> and our customer management approach with customers is really improving our visibility and the opportunity set that we have so you know all of that helps me.
And others at our company, a b, a b very confident and our ability to.
Manage through any type of environment and then also just 1 last thing if.
If you look back to last year, our agility during the pandemic as as really something that we take note of as well so even whenever it gets really challenging we have the ability to to adjust and so I'll leave it at that thanks Kim.
Thanks and just.
And then your thoughts on the capacity that are being added right. So you're adding others are adding price do you think that hurts. So our long term in terms of what you need to take or do you see a secular change here and and.
A L T L demand going forward.
I really think that there there could be I mean, it looks as if there's a change in secular demand and hopefully that's 1 that stands the test of time, but I I know right now.
There's a great demand for our network resources, and we're very focused on utilizing knows and the best possible way.
And we're seeing this growth and e-commerce, I think that digital adoption by consumers and businesses over the last really even the last year is a pretty exciting and then I think the the growth that's coming from the industrial side.
Is also something to take note of as well, but you know sometimes it just boils down to who's able to be the most reliable and I think our model with our low turnover in a relative sense in terms of drivers and the consistency and the availability of our resources to serve customers and.
It's something that's going to continue to be very important as we go through the next several years.
Wonderful. Thank you very much appreciate the time.
And thanks, a lot Kid.
Our next question comes from Jack Atkins with Stephens incorporated please proceed.
Great. Good morning, Congrats on a great quarter here.
Hey, Jack.
Hey, guys. So I guess I guess, Judy let me kind of.
And ask you about capital allocation for a moment.
You guys have about.
11, or 12% of your market cap and net cash right now on the balance sheet.
I know there are a lot of opportunities to invest and the business and.
I guess.
Have the flexibility also to maybe be a bit more aggressive on the buyback I'm just curious.
And I understand why why you guys are being more aggressive given given the significant discount to try to get relative to historical averages and you're not.
Union peers.
Well I think the basic answer to that is that is a part of bar cap. Our overall capital allocation program. We had certain you know targets I think we've got $42 million left on on.
On our share repurchase that we have available to us and we intend to use it and as well as our dividend and and we've outlined I think David went into a pretty significant amount of detail in his prepared remarks about the uses of cash.
Capital that we see and what we're describing is what for US is a good investment backdrop.
Backdrop for us and our asset base business in terms of increased level of spending per equipment and.
And some increased levels of spending on real estate now realize we're in.
And the places that we should be we're a mature company and you know we have facilities that are well placed but we do have expansion needs. We had some upgrade needs. We also see and opportunity to advance them in the environmental area.
Yeah, and creates and efficiencies and some of these facilities. So we really feel like from an investor point of view those are of interest as well and so our plan is to.
You now have that have some of our resources used for and the increased level of capital spending and a more purposeful approach I think as we March forward on on the real estate and then also we maintain some level of of capital and the event that we.
Find a strategic acquisition opportunity that allows us to add scale and and because we see that scale as needed and we're where we would benefit from that so really all of those things are on our minds as we're thinking about capital allocation.
Okay.
And I appreciate that that insight there I guess for my follow up question and I would just be curious.
Areas, where you can invest and the business. If you could maybe provide us and update on your technology and efficiency initiatives related I think it's and Kansas City and in Indianapolis.
When do you think we're going to be able to kind of get a greater insight and the impact that could have on the business and the potential to scale that over the next several years.
Yeah, I mean, we're hopeful that we've got.
A few more quarters to go on the pilot, particularly and Kansas City before we're ready to talk more about the rollout plans that we have there.
We are seeing.
Seen some in and Elkhart, and Indianapolis, which is where the other 2 facilities are we're meeting our targets in terms of those facilities and the pilot projects. We have there. If you think about what we've done you know the and <unk>.
Elkhart facilities and end of line type facility Indianapolis is also that but it has a larger city operation and then as you move to Kansas City, You've got a distribution center that we're testing that so it's really yeah. When we say 3 facilities. They are 3 different facilities that we need to do this pilot work and.
And so this process and involves equipment and it also involves software and it involves.
Training and development of our people, but we continue to be very excited about the whole process and but no. The value that we could have if we handle the pilot well we do the testing we need to and then we roll it out more broadly across the company so anyway.
And I'm glad you asked about it and and again.
And now we're continuing to see good things and progress and we'll be able to talk more about that as we go forward.
Okay, and thanks for the time debt free.
Jack.
Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed.
Hey, Good morning, guys. This is christine on for Ravi Shanker.
And my question.
Kristina how are you hey, how are you.
And you.
Good.
Let me just take a step back here I'm circling back to some other commentary on demand other thing you've got some you're confident and the outlook from here, but maybe you can just talk a little bit about what is giving you guys that confidence how customer conversations going on maybe a little bit about kind of the inventory picture.
You see that demand.
And sort of things playing out for the rest of the year and maybe even into early next.
Yeah.
Yeah, that's great right thoughts and we are having and.
Some amazing conversations with customers and why.
And the things that we did several years ago was to position ourselves as a logistics company and there's no time like 2021 to have those kinds of conversations. It's it's amazing how customers have just different sorts of disruptions and their supply chains and so.
I think because of that and because of future planning, they're really willing to have a conversation that's more about a holistic solution that we could bring and I can tell you. This because of the other modes that we bring to that conversation and our integrated approach to.
And then.
And then being able to even in the short term our bail them out of a situation, where we use the assets and our network or ground expedite type equipment to help them. You know all of that brings us to a place where we can have great conversations with customers. Some of them are still struggling with inventory levels and I think there's.
You know, there's been some timing shifts and the way that they're thinking about things you know, but others. I think are looking for a trusted partner to be able to plan with as you know there they're seeing life beyond this sort of disrupted place and so but you know our our approach.
As Ive mentioned as a logistics company brings about a conversation that's a more multi mode and its longer term a lot of times. It involves assets, but it doesn't always have to and I'm I am increasingly pleased with our approach and beginning with and discussion with 1.
And of our asset light solutions.
That goes from there where you know it years ago, maybe we were talking about our assets first and I think our customer management team has done a great job and elevating the conversation to a place and that's more beneficial for the customer and also for us.
Got it that's very helpful.
And maybe.
And if I could squeeze and 1 more I just want to go back to the capacity and conversation.
Particularly around the labor side of things and he's kind of availability on that front is going to banking and this quarter. So maybe you guys can touch on what you guys are experiencing I imagine that day.
And agreement right now is actually quite helpful.
On it and you expect to do anything you know sort of around the edges with hiring bonuses you mentioned kind of recruiting.
And picking up the recruiting side of things.
That's helpful as well.
Yes, we are challenged by that as I think every.
1 that's in our industry is but we are making progress and.
We've hired and net of around 500 people and in our asset based business and we've got close to 2000 debt or in the process. So things are going well 1 of the things I always like to mention when we talk about this is our arrangement that we have to bring on.
Soldiers that are retiring from the military it's a partnership that we have with the Teamsters and the military and we've hired almost 600 people through that program over the years and it has been great for us and I and I hope that every soldier that we've hired would say that it was great for them because we put a lot into that.
We really appreciate our partnership there and yet and as I say that we still have a lot to do we still have you know many folks that we would like to hire now some of that is going to replace and elevated level of purchase transportation that we have.
And you know where were at high.
High levels of utilization of rail and other purchase transportation and you know that that's not necessarily all bad from a cost per mile standpoint, but.
But we know from a overall customer experience standpoint that we like to move.
Move on shipments through the network keys, and our own resources for the most part and so it's great to have those partners and that variable resource.
But as we hire people you may see.
B later in 2021 and into 'twenty, 2 before we see a reduction and those purchase transportation levels, but and you know.
And that's that's something that we devote a lot of time and energy to we're hiring them.
More resources are in terms of recruiting to help us address it and I think our digital marketing strategies are working pretty well as well, so but anyway I hope that answers your question Kristina.
Yes definitely.
And the time and insight as always thank sir.
Thank you and thanks a lot.
Our next question comes from Chris Wetherbee with Citi. Please proceed.
Good morning, guys James on for Chris and just wondering and good morning from the tonnage.
And I just wanted to touch on the tonnage trends a bit more on what you were seeing and your core <unk> business.
Good day.
Trends.
<unk> seen and if it's negative.
On in terms of comps, but just wanted to get an indication of what you are seeing or expecting and August and maybe through the rest of the year.
Yeah.
Yeah.
This is David and other.
Talk a little bit about.
And what we're seeing and part of that plays into.
What happened last year, when you think about the tremendous growth that we had and some of these larger shipments, particularly we talked about the shoe perk elm.
Element that we have and our business is kind of unique to the industry are thinking and so that those shipments or or substantially larger than our typical L. T O type shipment and and so we took.
Head and an increased demand for that beginning really in the <unk>.
Mid third quarter last year.
And on into just really became.
And some historical levels for us and with that business. So as we move forward from here and we're gonna be comping against.
That heavier weight per shipment that we had last year and so when you think about.
And our July weight per shipment compared to June is trending down and that total basis like I said.
But that's kind of the mid single digit range and that's that's due to those those large accounts, but we're seeing.
And we're managing that down because we're having increased demand for our core L. T O.
Counts and so on.
And the weight per shipment on the on that corridor public still TL business is essentially flat kind of in July versus June.
Historically, we see a slight decrease I guess from June to July and then.
But at the same time, we're having streep and revenue and revenue per shipment.
On the on that core business so.
And that's what's happening and as we were having a core customers come back, we're adding customers retaining customers and.
And at a higher rate and we have and the past Oh a.
L T L business as we move forward. So hopefully that helps helps you.
And kind of the dynamics going on there.
It does and just so.
Just to follow up on that a little bit.
Revenue per.
And on their way to being down 2% sequentially just given the size of the business is relatively cheap debt.
And like a continuing trend or was there a basically a large step down in the first and.
On July and then it sort of.
Basically the stepped on basically done and maybe you can exceed that and sort of at the.
The level that was added and the run rate and that's the right way to think about it or is it basically and the comps get harder and EC.
And it could be more difficult.
Well I would say this comparison to the the larger shipment.
Activity and it gets tougher and if you will as we go forward because we had this.
Essentially the shoe peg business went away and.
And the second quarter of 2020, but then came back beginning in the third quarter and.
And it has had some volatility and it's so.
And that comp gets tougher as we move forward.
Got it thank you.
Thanks, a lot.
Yeah.
Our next question comes from Jordan Alger with Goldman Sachs.
Good morning, just a quick follow up on framework and Jordan.
Good morning, and quick follow up on more interest transport and I'm, just sort of curious you know and the environment. We're in with the supply chain I mean.
And how hard is open and to ensure sorted and third party capacity that you need and then I know as you're hiring more people that should lessen do you have any sense.
And when we might see and inflection around purchase transport and sort of going the other way.
Thank you well, we we have not experienced difficulty and accessing that resource and the only thing I'd say about it though is that you know what what goes with it and is sometimes whatever service issues they might be having as well. So you have to accept some of that whenever you use.
And third party resource and we do and what I would suggest to you is because of where we are with hiring and I know the demand needs that we have and the business I would suspect that for the year of 2021, we're going to have this elevated level and so hopefully you know at towards the end of the year.
We were able to pare that back some but I don't want to.
Mislead you and into thinking that it's going to be significantly better at some point this year, because I really anticipate that it's going to continue.
Okay. Thank you so much that's it for me.
Thanks Jordan.
Our next question comes from Bruce Chan with Stifel. Please proceed.
Hi, everyone. Good morning.
This is Matt on for <unk>. This is Matt on for Bruce This morning, Okay, Alright, Hi, Matt flow.
Just wanted to echo the congrats on a great result, and LPL.
And maybe on that note can you.
And welcome Ken can you just remind us how the profit sharing scale works at ABF, and perhaps what the big or thresholds might be.
And as a follow up we've heard a lot about hiring and retention challenges and the market.
Do you think the profit sharing measures specifically have been making it easier for you to recruit and this market. Thanks a lot.
Yeah, you know I was.
And would say that really our asset based business provides 1 of the most generous comp and benefits.
Packages and the industry and so I think that that should should.
It should help us in the recruiting effort as you point out.
Italy.
So sooner and our turnover rates on our drivers I mean, we have some of the lowest and the industry. So it's and it's also I think encouraging that.
These programs, which include a favorable health and welfare.
Program and pension and benefit.
We will begin to have some positive recognition by investment firms for being employee focused and and the sustainability of the workforce. So.
These costs.
Have been higher than the industry I think we've acknowledged that but they're embedded in our results and should have less inflation than maybe others are experiencing at this time, but as you point out we have and have a union incentive in the current contract.
We've included some additional information on our earnings release about how that works and.
And then some levels that certain or levels.
Obviously, the year has to be finalized when we halfway through it but I think 1 way to think about it is to to look at the year to date, a war and how that's tracking.
The asset this is on a GAAP basis. The way this metric works and so the asset based GAAP of war through the second quarter was $92.2.
Versus the $96.5 year to date and 2020 so.
Yeah.
Below with 93, we pay a 3% and so.
And again, that's calculated on a GAAP basis and so.
Each percent is about 5 million to $6 million.
And of amount.
For the Union and so.
And we're accruing for that as <unk>.
And as we go and just as a kind of a percentage of the asset and asset based profit too.
Through the year and so I would encourage models that debt.
We're trying to model our expenses would would look to that matrix and and kind of how we're performing as you as you model. It out so does that help Matt.
Absolutely thanks for the color.
Sure.
Thanks, a lot Matt preceded it.
Our next question comes from Stefan anymore with Truest. Please proceed.
Hi, Good morning, Hi, Judy I T and good morning, and it has good good to hear you.
Absolutely.
1 other question, if I had to and Judy you brought this up on a year.
And responses already but and and.
And you kind of just discussed could be the benefits of offering the full suite of really logistics services debt and how that differentiates you amongst your peers and you have any kpis or metrics, we couldn't make it here in terms of whether it's about customer retention or customers that know us.
X number of services versus X before you know, especially just given how volatile the last year's bad I'm sure up and and customers have really understood the value proposition, but any update on metrics that they really helpful. Thank you.
Yes, and that's.
That's great thinking and we and when we look at our what we're experiencing.
Spearing seeing from a retention standpoint, I mean, it's really a pretty amazing and you know well.
When we sell when we when we have and account that is cross sold.
Typically our revenue.
Shipment levels and profitability levels are in the range of 7 to 9 times higher.
Higher so you know there is a great benefit to I think about the customer and to us for doing that.
When we look at our accounts and this will this will highlight for you the opportunity that we have ahead of us about 35% or 36% or so of our accounts.
Active accounts have been cross sold and about I wanted to say 16 or 17% of our revenue is from.
What we call a secondary source in other words, we you know maybe the customer entered as and L. T L customer and that secondary source.
Is it coming from.
And like I say truckload.
And now we are increasingly seeing customers come in on the truckload side, and then wanting L. T L resource as the secondary so that's kind of interesting too, but you know when we look at what we were looking a year over year and quarter to quarter about the revenue that's coming from that cross.
Sold and experience that a customer has we're very bullish on that and very excited about it and you know as as we've been talking about it really does increase our retention level. You know another thing thats kind of been interesting is to see when a customer enters as and asked.
Net light customer in other words, they come in and say doing truckload business or expedite or are you know 1 of our asset light type services.
I'm majority of those and that utilizing our LTE on network as well and part of that is because of the coordination that we can provide them in other words, we can have full loads going to 1 of our locations and injecting that freight into the network and being delivered.
So that's pretty exciting and again I think customers just want options and they want to have those be assured options and I think the way that we built the company really lends itself to that.
Absolutely and well that's really helpful and everything I had thanks so much.
Thanks, Stephanie.
Yeah.
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Hey, Thanks, good morning.
I'm wondering do you do.
Do you think that there's a.
And that the pricing trends should continue to accelerate into the back half of the year do you see potential for a second G. R. I this year.
Yeah.
And I think that's a good question.
You know.
Really what we're experiencing is I.
I think historic in terms of some of the price levels and I'll remind you that we've been on this path of really trying to address some of our accounts since 2017, and so we built to this place which.
And is I think.
I'm very thankful for that because of the environment that we're in but most of the time that we're spending Scott is on really looking at the opportunities that we have kind of evaluating what will work best for the customer and for us.
We have more visibility than ever on where freight is needed and what works well for us and you know that enters into this whole conversation as well, but you know it feels like a strong environment I think.
Certainly.
We've always been in that place and you know I anticipate with the demand levels and the conversations that we're having today for it to continue and that strong area for a while.
Okay.
Can you just talk about the expedited business trends in July and and how those trended relative to normal seasonality versus June.
And then I'll let.
Sure David Cobb will answer.
This environment is conducive for our expedite business and we're able and we're thankful that we're able to provide that service and that.
And that just goes goes with all of our service offerings and enhances I guess, the food logistics opportunities that we have but.
We saw strength and expedite as we've mentioned and the release and and we.
We had debt as well and the first quarter.
And we're continuing to see that and in July as well and we talk about this large July revenue growth.
And part of that is is.
As from expedite business.
It's going to be interesting as I guess as auto demand, how that moves and how manufacturing plants and other plants kind of operate through the rest of the year and and.
And I think there is some you know some.
On.
Some needs there are some man for product that hasnt been met yet so you know.
And that could be and encouraging thing as we move forward as well.
Scott.
It does yes, and if I can just ask 1 last thing.
When you talk about the upgrading the network is there a way to put a rough number around the door count increase or terminal count increase and and I'm just talking about what was the last time you did something like this.
Well you know we've always.
Always dressed our facilities based on the demand levels that we've seen what we've typically done is is added doors whenever we have a consistent level of business that leads us to you know that being the right decision, but I'm you know 1 of the things that I think this environment.
And what we are hearing from customers and helps US with is just you know greater confidence in.
And that.
That business level or that demand continuing into future years, and I think David gave you.
And the information on the dollars that he anticipates, but David do you want to add anything to that will just just debt.
And the capacity that could be added there is going to depend on a lot of factors, including site selection and timing of those projects, but but.
I would think of it.
Target that we have currently really is to add around 5% 10%.
Increase and door counts over around and the next 18 months or so so.
We think there's also opportunity to improve productivity through existing.
Doors.
As we move forward as well so does that help.
Very helpful. Thank you guys. Appreciate the time, Thanks, Scott We've got a couple more and we'll try to get in and so go ahead Frank.
Our next question comes from Todd Fowler with Keybanc capital markets. Please proceed.
Hey, Thanks. Good morning, everyone. This is back on per Todd just wanted to go back on the U pack and the spot Hey, good morning.
Just wanted to go back to the the percentage of mix for you pack and spot I guess, just what is what is that percentage kind of on a normalized basis and I guess do you guys see that moving towards the normalized level and then maybe moving past. This core continues to pick up just like.
And your thoughts there thanks.
On this.
On a shipment basis.
Including our non residential.
And excuse me not nonresidential non U pack residential is what that mean to say.
And as 11% to 12%.
And <unk>.
That's correct, but I guess more.
Normalized what would that number be.
That's the normalized number.
Okay. Okay got it and then just I guess higher level on.
The asset light piece.
I guess and I'll pass you get upset about 5% operating margin.
And longer term I guess, what are the big levers you guys can pull to maybe moves towards that towards that number and.
2021, and then maybe 2022.
Well as you look at the numbers, we've made some progress and we certainly want to make more.
And that business when you're growing it.
And there there are some fixed costs and then there are some costs that you.
You have to hire ahead in order to get the benefit of that and so we've hired a lot of people. This year and so 1 of the things that we look for is over a period of time, probably at least 6 months you know 2 a year, maybe a little bit longer does those folks would reach a level of efficiency and so that will be helpful.
And to us.
And as we add scale to that business and helps us with fixed costs and adding.
Adding dollars to the net revenue line.
Is he useful to us because it it will help us with our achieving bottom line improvement because again of the fixed cost nature, we have a larger fixed cost and.
And that business than you might expect because of the investments that we've made and technology.
And to advance our digital capabilities and so.
But I think the main thing is scale and dollars to the net revenue line and that would be true and every business line that we have and asset light.
All right well, let's wait and I think we've got 1 more so if we can get to them, we'll we'll try to wrap this up.
Our next question comes from Jeff Kauffman with vertical research partners. Please proceed.
Thank you very much and thank you for squeezing me in.
Congratulations to everybody is just a terrific quarter just all around.
And not just fell off so it was great to see.
And so.
Thank you.
Bigger picture question here.
Every time, we have a recession, it's almost like a hurricane comes out and the water floodwaters come in and we adapt and and the waters recede and and the shoreline always looks a little different and.
And I think you're kind of signaling that with this terminal capacity upgrade and some of the other things going on but we've heard from UBS. How people are coming back so a little less on line a little more on the stores I think Amazon kind of hinted at that.
Lead waters recede here and you're looking at what your business is starting to look like on a more normalized basis.
What are some of the bigger changes that you are noticing or is it too early to tell whether some industry groups are coming back some industry groups of changing their entire distribution chain and they're asking you to come in and and serve a different purpose.
I'm just kind of curious what you see different.
And as the floodwaters are receding and we're getting a clearer picture of kind of a post COVID-19 world.
Yeah, that's a great question, Jeff and 1 that I think we think about a lot of we're experiencing some conversations that give us insight into that and yeah. Some of this may be our strategic positioning.
And these conversations, but what were seeing and well let me let me say that first of all let's let's level set on.
Our business is.
Tied into the.
The industrial economy, and retail and we have a good mixture of large medium and small companies that we do business with and what's been interesting is and the second quarter you look at it we saw strength in every 1 of those sectors and I'm talking about you know the day.
Manufacturing wholesale retail I mean, even construction and we saw some strength there and so that's a good backdrop, but I think what is different is again. This is for US is yeah. We've been.
And a lot of conversations with.
And with customers about them their supply chain management, I mean, they're very much willing to re look at things I re evaluate and it's useful to them that we're a company that has multiple ways that we can approach a solution for them in fact, we're in the conversation because.
That and that those advance and you know the other thing I think that's different is just the advancements and visibility.
When we look at our asset based network or even.
Our carrier partners, we know more about what they what works well and the asset network, but also what works well for the carrier partners and in other words, we've you know they'll tell us.
What type of freight they want which lanes they wanted and and so the more that we can have that top level conversation and understand the challenges of that supply chain. You know then we can really offer some good solutions and options for our customer and their.
And had been many years and the past where a customer was really just desiring 1 mode. They wanted to do an RFP. They wanted to do a bid. They wanted 1 mode that was it you weren't having more conversations. So this this changing environment is really what's different to me and the conversations that are.
Customers are willing to invest in.
Thank you very much that's my 1.
Alright, Thanks, a lot Jeff well listen we thank everybody for joining us. This morning, we appreciate your interest and aren't best and this concludes our conference call. Thanks a lot.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
Okay.
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Uh huh.
And.
And.
Yes.
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