Q3 2021 ArcBest Corp Earnings Call
Okay.
Greetings and welcome to the Ark Best third 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 four 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 November 2nd 2021.
I would now like to turn the conference over to David Humphrey Vice President of Investor Relations. Please go ahead.
Thank you for joining us today on today's call. We will walk you through the details of our record third quarter earnings.
Our presentation. This morning will be done by Judy Mcreynolds, Chairman, President and CEO of Art Best and David Humphrey, David Cobb, Excuse me Chief Financial Officer of Arc Best.
Also joining us for the Q&A period will be Danny LOE art, best President of asset light logistics and chief yield officer.
To help you better understand art best and its results. Some forward looking statements could be made during this call.
As we all know forward looking statements by their very nature are subject to uncertainties and risk.
For a more complete discussion of factors that could affect the company's future results. Please refer to the forward looking statements section of the company's 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 in our earnings press release Rex.
A reconciliation of the GAAP financial measures to the related non-GAAP measures discussed in this call are also provided in the additional information section of the presentation slides as.
As a reminder, the slides that Judy and David will be referring to here can be found on the art best website <unk> Dot com in exhibit 99.3 of the 8-K that was filed earlier. This morning or you can follow along with US on the webcast. We will now begin with Judy.
Thank you David and good morning, everyone. This quarter, we achieved the highest quarterly revenue and operating income in art best history, demonstrating the success of our growth strategy and cost management efforts and validating our strategic vision for the company.
These results further strengthen our record breaking 2021 performance and bolster our leading position as an integrated logistics powerhouse I'd like to begin by highlighting some key achievements of our record third quarter performance and continuing business momentum then David Cobb will take you through the specific.
So this quarter's financials in greater detail and finally I'll offer a few additional comments before we open it up for some questions.
As noted on slide four for the last few years, we've been executing on a three point strategy to drive revenue growth and improve profitability. These efforts are clearly paying off as underscored by our profit margin improvements and the increased consistency of our financial performance. The strength we are experiencing it.
Our legacy business combined with the capabilities. We gained with the addition of Novo ensure we are well positioned to continue advancing this strategy meeting the expectations of our customers and driving growth and creating value for our shareholders and other stakeholders. This quarter. We are proud of the progress we made.
Toward our goal of balancing our revenue mix each step of the way our willingness to listen and our agility allows us to better support customers, who often need both asset based and asset light solutions. Our asset based business offers many advantages and resources that allow art best to craft customized.
<unk> using assets, we already own and manage ABF freight flourishes when utilized alongside solid asset light services because of the options, we're able to provide our customers.
These capabilities have been invaluable over the last few years as we have worked to make our customer experience truly seamless across the full breadth of our integrated solutions.
To advance the third tenant of this strategy optimizing our cost structure, we are adopting innovative technologies that help us serve our customers in their preferred channels as an industry, leading digital partner and operate our business in a more intelligent fashion, our digital capabilities continue to provide us with a.
A significant advantage in streamlining processes, reducing costs and augmenting human expertise, we stay close to our customers and carrier partners to provide them the services and connectivity they need in the way they want to access them.
Our efforts to advance our strategy in each of these three areas are instrumental in helping customers drive the economy forward and continuing to unlock incremental value for our shareholders.
Turning to slide five our third quarter performance outpaced our already record breaking year to date revenue and operating income results for the first time ever our consolidated quarterly revenue exceeded $1 billion, we delivered strong revenue growth across the organization as illustrated by the year.
Over year double digit percentage increases in all of our operating segments building.
Building on the significant momentum, we are growing and expanding as an integrated logistics leader, we added mobile solutions to the art best family, we remain laser focused on serving our customers with customized solutions in the midst of a very challenging times, we are responding to tight market demands with agility.
Banning our capacity and investing in the right solutions to meet our customers critical needs.
At a time a critical time for their business.
We are excited that we can profitably flex growing our company and expanding our offering to better serve our clients, creating new opportunities for employees and value for our shareholders at the same time.
Yesterday, we announced our plans to increase the return of capital to our best shareholders by entering into a $100 million accelerated share repurchase program with the strength of our balance sheet and our ability to generate solid cash flows utilizing a portion of our cash resources in this way.
<unk> allows us to invest in our stock, which doesn't reflect art best intrinsic value or our prospects for growth and value creation, along with our dividend program enhancing our return of capital in this way illustrates the belief we have in our long term strategy to grow as an integrated logistics company meet.
The needs of our customers and carrier partners, each and every day.
Turning to slide six and as I mentioned earlier yesterday was a monumental day for us in our efforts to best serve our customers across a broad suite of logistics solutions. We successfully closed the previously announced acquisition of Mellow solutions, a Chicago based company that is one of the fastest growing truckload brokerage.
<unk> in America Importantly, this acquisition moves us significantly closer to delivering on the strategic objectives I just discussed, bringing our two companies together significantly accelerates our growth by increasing the scale of our truckload brokerage services.
Together with my low art best is a top 15 U S truckload broker with access to over 70000 carrier partners solidifying our position in the $91 billion and growing domestic transportation management market.
With the transaction now closed we are embarking on an exciting new chapter in our company's history driven forward by the innovative thinking of our people.
The reaction of all stakeholders, including those at art vast and Modelo has been very positive. We look forward to welcoming members of the leadership team to create a world class management team that can bring these two industry leaders together as a people first integrated logistics powerhouse as you can see on this.
Slide. The addition of Milo has already moved us toward a more balanced revenue mix, which better represents customer transportation and logistics spanned the Mojo acquisition is an important step to build and amplify our port powerful portfolio of shipping and logistics services and allow us to continue expanding our.
Best role in the transportation marketplace, we have an exciting future ahead, and we enthusiastically welcome them a low teen art best.
Moving to slide seven we entered this transaction with a strong balance sheet and after making the closing cash payment and considering our cash investment in the ASR, we remain in a solid financial position, our cash and total liquidity are at impressive levels and we're in a reasonable net debt position on a pro forma base.
Though we are currently dealing with some manufacturing delays, we are continuing our investment plans to expand asset base capacity to support our growth objectives as well as our programs to return capital to shareholders through dividends and the accelerated share repurchase program, we just announced with our strong balance sheet.
And resilient and growing free cash flow, we have the flexibility and firepower to simultaneously invest in organic initiatives and external growth opportunities, while accelerating returns to shareholders and now I'd like to turn it over to David Cobb to let him provide more details on our third quarter results.
<unk>.
Thank you Judy and good morning, everyone.
Beginning with some highlights of our financial position, we ended the third quarter with unrestricted cash and short term investments of $468 million or $244 million of debt at the end of the third quarter included 50 million borrowed on our credit revolver and $194 million of notes payable primarily owned equipment for.
Asset based operation.
The composite interest rate on all of our debt was two 8%.
We are encouraged by strong customer demand the amendment at minimum in our business and the solid cash flow generation as evidenced by 389 million of adjusted EBITDAR for the trailing 12 months ended September 30th 2021.
Operating cash flow combined with our balance sheet capacity enables us to pursue accretive external growth opportunities like the mobile transaction, while making value enhancing organic investments paying an attractive dividend and enhancing our share repurchase program.
Our balanced capital allocation plan advances our growth strategy building on art best leading position as an integrated logistics company.
Given our prospects for continued growth and value creation. Our board believes the current stock price does not reflect our best intrinsic value as Judy mentioned earlier, we announced a $100 million et cetera celebrated share repurchase program would final settlement expected to be completed in first quarter of 2022.
$100 million authorization is in addition to the $42 million remained available under our existing share repurchase program on.
On slide seven we note that on a pro forma basis, considering our cash and debt position at the end of the third quarter and after deducting the $235 million cash payment associated with the mellow training acquisition and the $100 million accelerated share repurchase program, we would have a net debt position of $111 million with.
Total liquidity of $373 million, including our available resources under our credit revolver and our receivable securitization agreement.
Regarding 2021 full year net capital expenditures, we now expect them to be in an approximate range of 100 million to $110 million.
Which is lower than our previous estimates our equipment orders remain in place, but as Judy referenced and as we mentioned last quarter. There have been delays in the original build schedules of our asset based and asset light revenue equipment related to parts shortages and manufacturing disruptions that have continued into early November.
As a result, we now expect that a portion of our planned 2021 revenue equipment will not be delivered until 2022.
In addition, other elements of our expected 2021 capital expenditures, including some real estate projects research and development investments and other miscellaneous capital items will also be delayed until next year.
Therefore, we expect that approximately 40 million to $50 million of previously planned capital expenditures intended for 2021 will carryover into 2022.
As stated previously we are committed to increasing our investments in revenue equipment and real estate additions and upgrades above our normal levels to facilitate future growth and to improve the ability to serve our customers. These are priorities and they offer us the opportunity to generate solid returns in our business.
We have a long term plan for facility investments that include new service centers expansion of existing facilities and renovation of others.
As a part of our long term commitment to these growth investments are preliminary expectation for 2022 capital expenditures is from 225 million to $250 million.
We're currently developing those plans and we will share more details when we announce our fourth quarter and full year 2021 earnings.
On slide eight I'll highlight our consolidated information as Judy mentioned earlier third quarter 2021, consolidated revenues were $1 billion, reflecting a 28% increase over the prior period.
On a non-GAAP basis consolidated operating income more than doubled to $96 million. Our adjusted third quarter 2021 earnings per diluted share grew 112% to $2.59 a year to date effective tax rate that was used to calculate non-GAAP EPS was 26, 8%.
And under the current tax laws, we expect our full year 2021, non-GAAP tax rate to be in a range of 26, 5% to 27%.
The effective tax rate may be impacted by discrete items that could occur during the remainder of the year.
Slide nine provides highlights of our key metrics in our asset based business asset base third quarter revenue was $691 million in average daily increase of 21% compared to last year. The third quarter non-GAAP asset based operating ratio of 86, 7% as of year over year improvement of 570 basis points.
And a sequential improvement of 230 basis points versus the second quarter of 2021.
The year over year increases in the third quarter tonnage and shipment comparisons were impacted by our deliberate moderation of the number of transactional and Iupac household goods shipments we handled in order to serve core L. T O customers.
The increase in third quarter, two total billed revenue per hundredweight on asset they shipments was impacted by higher fuel surcharges versus last year revenue per hundred weight on LPL rated business, excluding fuel surcharge reflected a double digit percentage improvement.
We also secured an average eight 6% increase on asset based customer contract renewals and deferred pricing agreements negotiated during the quarter, which was the highest quarterly increase of any quarter in our history.
As you can see on slide 10 preliminary business trends for October reflect continued strong revenue increases and positive average tonnage and shipments as.
As we experienced in third quarter October asset based tonnage and shipment trends have been impacted by fewer U pack shipments versus last year as well as increasingly stronger business level comparisons in the prior year month.
We continue to have strong customer demand in our core L. T L business, our core or published L. T old tonnage and shipments increased double digits in third quarter over the prior year third quarter, demonstrating continued growth and advancement of our strategy.
In October the sequential changes in average daily tonnage and shipments with these core customers compared to September where the best of what we have seen during the last 10 years increasing versus September when there is typically a seasonal decline in these accounts.
Additional details on our October 2021 business trends can be found in the form 8-K exhibit to the press release.
On Slide 11, you can see that in total the revenue and art best asset light businesses increased 39% versus the prior year quarter, reflecting strong demand in our art best segment and improve events and revenue per event in the fleet and excitement.
Third quarter asset light operating income was 11, and a half million dollars compared to $5 $8 million last year.
Third quarter 2021 asset light EBITDA was $14 $2 million compared to EBITDA of $8 $6 million in third quarter 2020.
Preliminary asset light business trends for October had been provided in the form 8-K exhibit to the press release lease which was filed this morning.
Solid customer demand for our capacity options continues to be evident as October revenue for asset light Artemis segment, Excluding fleet NIM increased 39% versus October 2020, and with one less business day. This year that equates to an increase of 46% on a per day basis.
Margins on the net revenue, we're also running better than the prior year month.
Now I'll turn the call to Judy.
Thanks, David on Slide 12, you will note that our 2020 ESG report was released in the third quarter. It is our second ESG report, we have produced and it details the actions and progress we've made on environmental social and corporate governance initiatives across our business I am particularly proud.
Of our people first response to COVID-19, which showcases how we put our people first every single day. The report highlights how we've grounded our actions in the art best mission to connect and positively impact the world by solving logistics challenges now and long into the future. We are committed to operating responsibly and create.
Long term value for all of our stakeholders. This commitment includes a strong focus on advancing key priorities, including sustainable procurement human rights ethics and community involvement.
As our report demonstrates we've made significant progress this year on our ESG journey. The Echovirus bronze medal that was awarded to US in March recognize aren't best sustainability performance among the top half of all rated companies and industries across the world in April for the third consecutive.
Year, we were recognized as one of America's best employers for diversity by Forbes and statistic that.
At our best our people are at the heart of our success and we're committed to providing a work environment that embraces differing backgrounds and makes everyone feel welcomed and valued we formally announced the diversity equity and inclusion efforts underway across our organization and our inaugural 2019 ESG report and we are.
Committed to publicly sharing the progress we are making in each report moving forward.
On a local level in May we partnered with the Fort Smith public schools and invest at a million dollars in the peak innovation center to help prepare our communities and workforce or Tomorrow's careers. The center opens next year and will serve 43000 students across 22 regional school districts in our area.
As we close out this portion of today's call I want to discuss some of the major advantages of our customer led strategy, we are well on our way to becoming a unified provider of integrated asset based and asset light services. We are winning we have great momentum the strength of our results demonstrates how our breadth of <unk>.
<unk> differentiate us and are truly better together as shown here when we cross sell our services, we enhanced our account revenue our account profitability increases and it's easier to retain customers. Our research also shows that more than six out of every 10 art best customers utilizing <unk>.
Our asset light services are also using ABF freight for L. T. L services at our best we work hard to see our business through the lens of our customers as trusted advisers, we work directly with them to understand the challenges and put together creative customized solutions to meet their critical supply chain needs that mark.
In which we operate are large and our opportunities with customers are significant we've put the right people resources and tools in place to set ourselves up for success and ensure we continue to profitably grow our business and create value for shareholders as we move into the future. We're also not afraid to change and adjust when.
Needed we've worked hard over the last several years to position our company for sustainable long term growth and value creation. We're excited about our progress to date as well as the possibilities ahead as we increase our investments in our innovation technology and our people together as a team we will continue to find a way each.
And every day and we expect that our efforts will continue to benefit our customers as well as our investors.
And finally from a position of financial strength, we have taken recent steps to further secure our future as an integrated logistics provider, while enhancing the returns of those shareholders, who are invested with us our purchase of mellow further accelerates our growth by increasing the scale of our asset light business that people equipment and <unk>.
State investments, we're continuing to make in our asset based business will facilitate future expansion in that portion of the business along with our quarterly dividend the accelerated share repurchase program that we announced yesterday increases capital returns for our shareholders. The prudent actions. We've taken in recent years have allowed us to move forward with.
Into the future in a position of strength and purpose. Thank you for your continued interest and confidence in art Best We are excited about the road ahead and look forward to reporting next quarter on our continued growth and success.
That concludes our prepared remarks, David and I think we're ready for some questions.
Okay, Silvana I think we're ready to take some questions.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone you will hear three Tom prompt technology request.
Your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.
One moment please for the first question.
And our first question comes from Jason Seidl with Cowen. Please proceed with your question.
Thank you operator, Judy David David Good morning.
Good morning to adjacent one wanted to focus a little bit here on sequentially between <unk> and <unk> I know historically, you guys stepped down in the asset based side in the or a bit but you know.
As I look at your commentary and you get the best core customer growth, but in your last 10 years I think it's safe to say the pricing environment has never been better for LPL companies at least not in my career, which dates back.
I'll admit it now but almost three decades.
How should we look at that and as we sort of marry up the two as we look to <unk>.
Yeah, I think you know Jason.
Jason Good morning, this is David.
Historically as you pointed out we have a we've.
We've seen an increase in the or about 200 basis points from the third to the fourth quarter.
I would just say that that I think we're seeing we are seeing just a.
Endorsement of our strategy first of all just where we're we're seeing increased retention of accounts.
Just because we're able to provide customers more than one service and so that's that's enhancing I think are or it is enhancing our ability to retain customers and as I talked about the strength of the core L. P L business.
<unk> is showing up in October.
A great way and so if you think think about that continuing you know theres, some theres opportunity for that too to produce good results.
As we move forward, not only just quarter to quarter, but but I think beyond that.
These near term quarters.
So we're in Louisiana.
As <expletive> and optimistic about about what we're seeing along those lines.
You know kind of narrowing down into your question specifically around this year. It's you know there are some obviously.
Obviously, a lot of puts and takes but.
We're continuing to see the higher.
Purchase transportation usage, and that's really deserve a lot of those customers and so we're getting compensated for that but but that's that's probably going to continue in the near term as we are.
We are successful in hiring but that's just taking a longer period of time than we would like and so we'll see continue to see a higher level of P. T than we probably normally have you know there might be some do.
Due to the.
The supply constraints that you're well aware of there may be some parts and maintenance.
Of course that could be at a different level than we've seen in the past.
But by and large you know the business momentum is strong the pricing environment is good and we're serving our customers. So.
I hope that helps.
No no no it doesn't and my one follow up.
It was going to be on the shelf.
Share repurchase side I understand the 100 million share repurchase, but your existing 42 million how should we look at timing I'm trying to complete that are you guys going to be opportunistic or you're going to be aggressive in the marketplace.
Regarding the 42 million Jason.
Yes, yes, yes.
Yeah, that's that will that will kick back in once the ASR is complete.
Which as I mentioned matures in the first quarter and.
And so then that would that would be along the lines of opportunistic sort of.
Pause at that point that's right.
Okay perfect. That's all my questions guys I appreciate the time as always.
For the quarter.
Thanks, a lot.
And our next question comes from the line of Ken <unk> with D. A V. Please proceed with your question.
Hi, good morning, and great job on the quarter.
ASR.
Okay.
Judy I guess the progress of your innovative tech what is left to spend what's left to accomplish on there maybe talk about your goals and what.
That can mean for your operating ratio.
And then just David just pay our AP scaled is that just a factor of the <unk> acquisition or is there something else going on there.
Yeah, I'll hit the E. R. A P. That's note below again, we just closed that yesterday, so that is not in our third quarter results.
It'll be reflected in our fourth quarter.
Counting the a.
Our a pea is really just a growth in the business you see both both of those kind of moving in tandem I think from from year end on our cash flow statement.
Does that help Ken.
Yes.
Yeah, but it seemed like an outsized large cap, but that's fine.
Yeah.
Okay.
You know I think Ken you were I think you were specifically asking about the asset based business is that right with regard to the technology piece exactly yep.
Yes.
That's what I thought okay, and so we are seeing progress there and I think as you know we have our pilot locations.
And for the new mobile platform technology and process and.
That's in about three locations one of those being a distribution center in Kansas City, and so we've been experimenting with a lot of different approaches there and are making good progress on the software and narrowing down you know what the ultimate answer will be and so as we move into 2022.
We are planning for another distribution center towards the end of.
2022, and that's going to be in Salt Lake City, where this technology is deployed and so what's happening is the operating software, which is all encompassing it's our operating platform as well as running the flash process.
It's going to be in a larger number of facilities as we move forward in and we are seeing the benefits of that that expansion. It gives us greater visibility on individuals' shipments. It gives us the ability to do better planning and say better claims answer and and it's a better.
Work experience for our workforce, which all of those are really positive and as we again as we narrow down the the different scenarios that we're looking at we expect it to really began to have some impact on the results, but you know we've just.
I think what the costs are on them on a quarter and then you can see it accumulated you know over the period and just suffice it to say that we're positive on it and we're excited about it and there's going to be more to come on how all of that impacts the operation that it's it's certainly designed to have a positive impact you know.
We have improved.
Improved the operating performance.
For a b F pretty drastically over the last five years, I think probably 750 basis points and and this whole project has really not had you know the impact yet that it that it could happen and so it's gonna be a contributor to future.
Positive.
Margin expansion as well as what David talked about is in terms of the yield environment and.
And I remember our labor contract goes through the end of June 2023, and it's got an overall, 2% increase for wages and benefits in it as well and so you know all of that comes together in a pretty good formula for continued improvement at ABF and then I think David also meant.
And the growth potential.
At us and that's exciting too.
Yes, that's what I was getting at is there still seems like there is upside from those those investments and then just if I can clarify before my time runs out Dave the 27% growth per day. Obviously, you just mentioned most of that was not in there do you want to give a thought on what it is with as you look for the quarter with Modelo.
In terms of your revenue per day.
Yeah, I don't have a stat for you, but you know what we've talked about with Modelo in Deniz here also he can he can maybe add some color if you'd like but around a little bit, but we talked about MAU low having a 2021 revenue year of around $600 million.
So if you think about us capturing a couple of months of that I mean, that's probably one way to think about revenue added to our fourth quarter I think that's fair.
So.
I don't know if that he has any other color to add to that.
<unk>.
I agree with David's comments on that I would think as you think through the year that they had been on a growth trajectory. So when you think of the annual.
Revenue that it will be heavier towards the back end of the year than it was in the front end of the year as you think through your model great.
Great I appreciate the time thanks, guys.
Thanks Keith.
Our next question comes from Chris Wetherbee with Citi. Please proceed with your question.
Hey, guys James on for Chris.
Revenue per hundredweight.
Improved sequentially.
In the past at least the past six quarters should be.
Continue to improve is there anything from.
A mix perspective.
Do you know what I mean, given fuel and price it seems like there's some strong tailwind.
Wondering if certain puts and takes.
Julian.
Yeah, I'm. So sorry, we cannot we can hardly hear you didn't really understand the question can you just repeat the first part of that to get us going.
Apologies for that.
Yeah, just wanted to actually touch on revenue per hundredweight, it's been improving sequentially wanted to know if theres anything to be thinking of.
The.
Mixed to be aware of that we should be considering as we model that moving forward over the next few quarters prices strong fueled strong just want to know if there's anything to be considered considered up from a mix perspective.
This is Danny I would say when you think through the revenue per hundred weight I mean mix is a piece that we've seen as we've gone through this but.
As Judy David commented, we've seen really growth from our core customers and so we can the strongest sequential we've seen so as we look forward from that that mix seems to be kind of a <unk>.
Steady state now with as we view it so I don't see anything at this point that would be from a mixed standpoint that would change that.
Great and then.
Or also just the pricing environment overall.
You commented on like the general strength of is there any sort of freak and you're pushing off from sort of an O. Our perspective that could be used.
Central Asia.
Any sort of step changes or anything or is the mix sort of where you want it now or is it.
We're sitting on that side.
Yeah, I wouldn't target anything specifically I think we have better visibility and a better understanding of our cost and at what our network needs and so really since 2017 with space based pricing in 2019, when we introduced dynamic pricing, we just have better tools and better technology to help us understand what the system needs and so really our focus is on water.
This of needs and getting the right price in that frame.
Thank you.
Okay.
Our next question comes from Jack Atkins with Stephens. Please proceed with your question.
Great Good morning, and congrats on a great quarter.
Thank you Jack good morning, good morning, So so Judy I guess, maybe going back to your comment a moment ago about.
The accelerating momentum that youre seeing in your business.
It really kind of across across both the top and the bottom line I'm just sort of curious when we think about the asset base, but business for a moment.
You know it feels like we're gonna be trending towards a double digit operating margin at a sub 90 operating ratio in 2021.
You know as you think forward given given the momentum that youre seeing in the business. How are you thinking about operating margin operating ratio potential within the assay best business over the next several years I mean is that mid eighties operating ratio.
Now I'll sort of on the table as Youre thinking about the potential for the business just sort of curious if you can provide some thoughts around that.
Well you know it absolutely is I mean, we're really there over the last two quarters.
Just really good momentum in and I think when I look over longer periods of time that what we're experiencing the asset based business.
There's a couple of things one is just the value of our L. T. L network, and you know to customers and especially as we combine it with some of the asset light solutions that we offer we talked about that a little bit in the prepared comments, but it really is the case I mean, the growth at times can come in a more whole.
<unk> approach within account, where you know you're bringing that account on as a an overall provider of solutions to them and it just means a lot, especially right now that you have assets to deploy in that in that solution set just because of the certainty of it and and it just works well.
So.
With that backdrop.
When I think about our <unk>.
I feel like in Danny's here on this call. So we will give him a compliment he and his team I mean, we have the best yield managers are in the industry and we're seeing a lot of value in the technology that we've deployed giving us visibility on that.
The best answers and options for us and we feel like that's going to help us with consistency even as economic conditions change switch you know that's a.
A great feeling knowing you know that in the past there may have been some difficulty that we would have in anticipating what would be best to do but that helps us with our workforce I mean, we've hired a lot of people I think 850 people net.
What we wanted to do with those people is to make sure that.
As things move forward. Despite the environment changes that we have those people working and I feel good about our ability to do that and then in the near term I think I've already mentioned that we do have a predictable labor wage and benefit increase level and.
Now what what we have at the same time as an overall package that we provide to our employees. That's the best in the industry and so that combination of things really lends itself to further margin expansion and again as I spoke to earlier the growth opportunities that we have with our holistic.
<unk> approach with customers, so where we're bullish or excited about it okay. Great. That's fantastic to hear and I guess I guess from a follow up question.
David Cobb with regard to the capacity expansion plans over the next 12 to 18 months that you guys outlined on the last conference call. You know could you maybe update us on.
On your outlook for terminal door growth, maybe in 'twenty, two I'm just sort of curious given some of the supply chain challenges that are out there that I think everyone's aware of how that may be impacted as we think about capacity growth next year.
Yeah. Thanks, Thank you Jack.
We've talked about and we are intentional about expanding our capacity.
First of all we're on a solid hiring pace I mean, that's that's.
That's critical for US right now is adequate personnel and certainly in certain locations, it's more critical than others and that's a that's a big part of the growth plans, but in terms of the investment from a capital standpoint.
We've talked about fleet expansion above historical levels and we're.
Targeting that you mentioned the supply constraints and that is.
Putting a little delay we think in some of our our deliveries of equipment and so we do see that impacting us we do think we'll get our tractor orders.
For 2021 at least by early 2022, and then our 2022 expectation at a higher level is expected to come in.
At this point anyway in 2022, so so so it's good on the tracker front trailers is a little more challenging standpoint.
But nevertheless, we were lagging adding there and think that's a good opportunity for us to grow from a facility standpoint.
We are.
We manage that through some owned properties as well as lease properties and so yes. You mentioned these supply chain is impacting that as well.
Making some of these projects a little longer term than we would like.
And those are you know.
This environment for the real estate market is a tough one as well, but nevertheless, we've got a five year plan targeting certain locations. Some of those of renovations that are that were are more feasible to get done and those renovations will will help in a number of ways.
Those.
In certain cases, they'll add some some capacity some door capacity. Other cases. They are also improving our energy efficiency and work life arrangements for people. So that's always good but but in terms of just our longer term target of increasing that talked about increasing yield.
Level of spend there kind of on an annual basis above historical levels of around a $50 million range.
That's that's still on our plans, it's just a matter of getting those done now some of that May as I've mentioned b in terms of a lease as opposed to capital. So it may not fall into.
Strict capex kind of a format on the financial statements, but but a targeted thing.
These are reasonable to say that we would look to add increased shipment capacity in the mid single digit percentage range kind of by the end of 2022 to two of our existing.
Footprint. There. So you think about productivity improvements could also provide an opportunity to increase revenue per <unk>.
Her facility so.
So an example of that is think about some of our warehouse configurations that we've added.
Like our Kansas City distribution Center, we've talked about.
It doesn't necessarily add doors, but it adds the opportunity to increase throughput in a situation like that so there's a number of moving parts, obviously, but hopefully that's helpful to you Jack It is thanks, so much for the time really appreciate it.
Thanks Jack.
Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed.
Great. Thanks, Good morning, everyone. Judy can you help.
In fact, the expedited business a little bit more I kind of feel like that's the business that should be really killing it right now.
And may also be a little bit of a leading indicator on kind of where we are in the cycle and where the industrial environment. It looks like so maybe a little more detail there would be great.
Sure.
And I'll make a couple of comments and then Danny can I think speak to that a little bit in more detail, but you know we're excited about how we're doing in all parts of our business as we mentioned and you know the expedite is certainly doing very well right now and you know it.
It is a great solution to some of our customers are most significant supply chain challenges and just works well in this kind of environment, but we've also got a lot of plans for the sustainability of that and as we move forward. So Dana you want to make some comments about sure.
Do what I think of our expedite business that it's in.
Asset light category, but for many of our customers, it's like an asset because of the surety that we can provide the service with those customers and so in this environment. Obviously, there is more demand for it but I think one thing that we really Havent mentioned, there, but we think moving forward is that we have some headwind really what the auto industry in that area and so the strength is really coming from manufacturing.
So it'll be interesting as all of the returns.
In the general scheme of things that will take capacity out of truckload as well so.
We're still bullish on expedite and as Judy said, we're looking at how do we maintain the sustainability of extra as we go forward.
Got it that makes us and maybe a bigger picture a follow up.
Judy it's been a little bit of a banner year for you kind of just given everything that's happened in the macro the acquisitions.
The other stuff as well.
I think it's about time for another analyst day.
But short of that and.
Maybe on this call, but what's what's next for you guys I mean, what were the big missing.
Missing pieces things to build on kind of what does our best look like five years.
Yes, well. Thank you for that for that question and I agree with you you know we do need to get together. Some some dates for another analyst day and to reset some of our targets whenever you see the results that certainly speaks to the need for that so I'm excited about that opportunity, but when we.
You look at our overall business, there's so much potential with what we offer I mean, we you know we do business in markets that totaled $330 billion, we have $3 billion of opportunity within our most loyal customers a lot of that comes from the truckload business.
And that's why the mellow acquisition makes so much sense I mean, we're excited about embracing that and bring it into that team that so experienced and additive to what we're doing and we feel like theres a lot of runway there.
Domestic transportation management market is $91 billion and growing and I think logistics services are predicted to grow 10% to 15% over the next decade on an annual basis and so we've got a lot of opportunity there, but but I will mention another part of our strategy.
E that we're working toward that we talked about a little bit earlier, which is relates to our R&D efforts.
We have a lot of potential there.
To get our flash process.
Mobile platforms and that process deployed within the asset based business.
But also thinking about that as a solution for our customers.
And some investments that we're looking at with our innovation accelerator.
And that R&D team, specifically and so these are things that are adjacent.
Maybe in some ways, but also for the most part they are just really solutions that help us impact either our growth potential of our existing business or the efficiency of it and so we're excited about having the dollars of capital available for those types of investments as well in and there will be more to come on that.
And the next month's end and into 2022 and I'm excited about that part of our opportunity as well so thank you.
Have you all here I think we're going to move along we got a few more to get to.
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Hey, Thanks, good morning.
Judy you talked about I think 2% wage inflation next year can you just remind us is that all in including the benefits and then I don't think there's any incremental.
Pay out to the Teamsters if the O R gets better from here, but can you just confirm that.
Yes, yes.
<unk>.
When we talk about the 2% that is the the wage the annual wage and health welfare and pension increase so that's all encompassing on that and and then in addition, as you mentioned there is an incentive plan for those employees and if you I think in our 8-K we.
Reproduce the scale for that and so the 3% level is therefore, a gap or of a 93 and below and so as things.
Things improve from this point.
The encouraging thing is theres, a 3% incentive.
That that goes with it so yes.
Good observation, but but meaning it doesn't get.
It doesn't go above 3%.
Yeah, I mean, that's where the scale and you know as far as that percentage, but yes, it's a point out when we look at past.
Times that we've paid its been at 1%. So we're very excited about the benefits that this could provide.
To our employees.
Okay, and then I just wanted to ask about the tonnage environment.
It sounds like the core L. T. L business has really good tonnage growth right now and it strikes me that almost no other place in transportation has much volume growth right now.
Do you think theres something about these supply chain issues and disruptions that is uniquely benefiting the L. T L volume environment right now.
Well as I mentioned earlier I, you know I just feel like the LCL networks.
Well in this type of environment.
Some of that I was speaking to the certainty of it.
The delivery the pickup and the delivery of your shipments, but also I think as as E Commerce has.
Become a greater portion.
The economy, when you think about the first middle and last mile LCL networks can participate in all three of those and do that effectively and I think for US. It provides us a lot of optionality.
Dealing with.
Customers and so we find situations, where we're utilizing.
One segment of that combined with some other modes that we do that really help facilitate an overall solution for for a customer. So I think some of it is the growth there, but I think it's also.
The case, when we look at our situation with our drivers are.
Our turnover is very low in comparison to the.
Certainly the truckload industry I mean, its low relative to other L. T L carriers as well, but it's David I want to say its tae sik.
Six six.
With retirements, yeah, as what David Humphreys, saying to me.
And that's.
That's just that's a benefit if you are a customer wanting certainty that helps and so.
I'll stop there, but I think that's a good positive.
Makes sense. Thank you guys.
Thank you Scott.
Yeah.
Our next question comes from Jordan.
With Goldman Sachs. Please proceed.
Hi morning wondering now that Malo is closed.
Curious there thoughts or your thoughts on on where they see the truck brokerage market fundamentals, but then secondly.
You had talked I think on the when you had the conference call a while back about timing of breakeven and being in the black and I just wanted to see if there's an update on that I think you had said the fourth quarter and I didn't know if it was operating income was going to be in a block by the fourth quarter and breakeven until then any update on that.
It would be great. Thanks.
This is Danny.
I'll give a quick on that really nothing's changed since our previous thing.
We see they've been around a breakeven and that our plan is that.
As we head into the fourth quarter that they would be on the run rate that we kind of have the target for 2023.
Now as you look at the overall I think.
There's not really been a break and kind of what you see in the projection the tender rejection index wishes to me as an indicator of the overall market.
The market is tight.
Our policy is tied in that area you may see a weekly type softening and then it returns. The next week. So I think overall, what <unk> seen is just a very consistent that there is a little more demand than capacity in the truckload area.
Okay. Thank you.
Our next question comes from Bruce Chan with Stifel. Please proceed.
Hey, Thanks, and good morning, everyone. Congrats on the results here and the good news.
David you talked a little bit about the elevated PT experience just given the tightness in the market right now that makes a lot of sense I wanted to get maybe both of your thoughts here on how you see that trending as malo kind of enters the picture.
Is there an opportunity to get better on procurement and what's sort of the pathway for that and then maybe just a little bit more broadly when we think about the interaction between.
All of the pieces.
Asset light.
Expedited and LCL is it all purely arm's length or is there any preference of priority of capacity to more lower loads Panther ABF that we should think about thank you.
Okay.
Bruce This is Danny.
The biggest piece when you look at this is we're really looking at it from a customer angle on this and so we make the best decisions for our customers that that flows through to our business lines, but.
Being the logistics company. We are we have those options we can make the decisions that's best for the customer that typically if we make the decision the best for the customer it lays down and it's the best decision for arc <unk> as well too so priority wise, it's really it's hard to say there's a single priority is just the ability to have those options lets you make decisions that work both for the customers and for us.
<unk>.
Yeah, I mean, I think Bruce whats being highlighted there and this is a decision that we made several years ago is that we are mode neutral, which means that we do see our business through the eyes of the customer. So we're not trying to force an answer one place or the other.
We're trying to identify.
<unk> the best solution for them and at the time that we made that decision. It was not that easy to make that decision today, it's a lot better a lot more equipped and we're glad we have that in place, but that's the mentality here and I think it's the right one.
Got it well that's my one I appreciate the time.
Thanks Bruce.
Our next question comes from Todd Fowler with Keybanc capital markets. Please proceed.
Great Thanks, and good morning.
Security with the step up in the profitability in the asset based segments, you know a big improvement in the O R. Here this year.
How do you think about the ability to show continued improvement going forward is this something that you know some of your peers have talked about the ability to show a 100 or 200 basis points of annual improvement do you think that the business has shifted now where you can see steady improvement in the or and kind of remove some of the cyclicality from that segment going forward.
Yes, I mean, I talked about this a little bit earlier, but I do believe that the steps that we've taken put us in a position where theres going to be.
The ability to grow more consistently and to be less of a victim to that you know the depths of the cycles and but it's really not just <unk>.
Defined within the asset based business is really kind of our holistic approach that we've been talking about.
But I do think that for instance, some of the yield actions that we've taken with our space based pricing and then the visibility that we have connecting our operating needs with the opportunity set that we get from customers Unquoted business.
Those combined with the work that we're doing to grow our core customers really puts a good flow of freight into the asset based business as we move forward and you know I feel like that some of our technology and optimization efforts that we have yet to go are going to firm.
Other improve.
Improved efficiency and in that business when you improve efficiency and throughput you improved the ability to grow and then in the near term here what we've what we've been encountering is a need to have.
More people in the business and we've hired more people than we ever have in the history of the company. We've also had a good number of retirements.
But on the net we've added 850 people to that business and we continue to need to add more but again once that that really has been our obstacle.
Two growing more so as we get them in place and trained and everything we should see that.
Potential the throughput potential and the growth potential accelerate and then I think David has already talked about the potential that we have with our equipment and our real estate. So.
Good backdrop.
Yeah, no. It certainly sounds like that you've got everything position now going forward, which is really encouraging. So maybe just for a quick follow up to that point does it feel like at this point you know the network with doing some actions to supplement with heavier weighted shipments last year. Some of the whole moving business, it's kind of all of that kind of where you want it to be.
And so when we think about tonnage growth going forward, we're in kind of more of a normal cadence of tonnage growth kind of core LCL tonnage growth from this point as we move into 'twenty two thanks.
Yeah, I mean, I think our view of demand from core customers is that it's good in that it's continuing and that's into 2022 but to your point.
Those other two.
Bought market opportunities really help us both as we see imbalance in the system and also as we see seasonal changes in the business. So we're glad to have that as well.
Yep understood. Thanks for the time. This morning, congratulations thanks, Todd. Thank you Silvana I think we've got time for one more question.
Our final question comes from Stephanie more Wood Truest. Please proceed with your question.
Hi, good morning.
I wanted to follow up a little bit on the comment.
Judy you May actually Jack's question, a little bit earlier, you talked about the revenue opportunity from cross selling RTL and asset light customer, it's kind of a better servicing you know what that customer needs, which often isn't just one mode of transportation, but is there any associated margin benefit opportunity as well I mean, some cost synergies there.
From taking that more holistic approach to providing these services.
Well I'll just add Stephanie I'll, just direct you back to that slide 13 that we have in our presentation, which the profit per account is four times higher on cross sold accounts.
And so that's what we look at and revenue per account five times higher.
Our retention is nine percentage points higher so those are really good solid statistics that support our approach.
And.
Again, we're excited about it and we see that I mean, we.
No debt when we serve our customer well this way than it what we're doing is we're actually partnering with them on their supply chain.
And really getting involved with them and understanding what's going to work well for them and that's a very important right now to our customer base.
Great well thank you so much.
Thank you.
Alright, well, we want to thank everybody for joining us today and this concludes our call. Thank you very much.
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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