Q1 2022 ArcBest Corp Earnings Call
Okay.
Greetings and welcome to the Ark Best <unk> 22 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.
At any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded on Friday April 29 2022.
I would now like to turn the conference over to Mr. David Humphrey Vice President of Investor Relations. Please go ahead.
Thank you for joining us on today's call. We will walk you through the details of our first quarter 2022 results joining.
Joining me today are Judy Mcreynolds, Chairman, President and CEO of Art, Best and David Cobb, Chief Financial Officer of Art Best It will have additional commentary from Dennis Anderson Art, Best Chief customer Officer, and Danny LOE Art, Best President of asset light logistics and yield officer, Chief yield officer.
To help you better understand our beds and its results. Some forward looking statements could be made during this call.
Forward looking statements by their very nature are subject to uncertainties and risks.
A more complete discussion of factors that could affect aren't best future results. Please refer to the forward looking statement section of our earnings press release, and our most recent SEC public filings.
To provide meaningful comparisons certain information discussed in this call includes non-GAAP financial measures as outlined and described in the tables in our earnings Conference press release.
Reconciliations 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 a reminder, the slides that we will be reviewing 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 for joining me today to talk about our first quarter 2022 results before we begin I want to acknowledge the world events that have transpired since our last call, including the humanitarian crisis in Ukraine. Our Hearts go out to everyone affected and we joined does calling for a peaceful resolution to this conflict.
Nick.
We do not have direct operations in Ukraine, or Russia, while it is hard to anticipate the long term impact of the conflict on macroeconomic conditions in our operating environment. We are confident in our strategic direction and our prospects for continued growth and success.
Turning now to the quarter, our three point strategy remains our north star for creating sustainable value shaping how we do business and how we deliver for our customers and employees. It also guides, how and where we invest resources to ensure we continue to grow our business, while unlocking new opportunities to.
Help drive the global economy.
Our strong first quarter 2022 results, including record profitability and improved operating margins across the business are a testament to the merits of our strategy and to the team's relentless and outstanding execution of it.
I wanted to take a moment to acknowledge the outstanding work of art best talented and dedicated employees. Thank you for everything you do day in and day out to meet and exceed the needs of our customers and business partners, while creating value for our shareholders.
Our exceptional performance in the first quarter of 2022 and over the last several quarters has enabled us to continually make smart investments back into the business, including our people our solutions and our technology to advance our vision and adapt to the marketplace, while driving revenue growth.
I'd like to begin by walking you through the progress we are making in each of these three areas through our reinvestment efforts starting with our people. Our people are at the heart of our success and we want to ensure they have the tools and resources and means needed to excel in their jobs every day.
This commitment is exemplified by a b S current labor contract, which offers one of the highest paying wage and benefit packages in the logistics industry as well as a landmark capital commitment we have made to investing in ABF facilities and equipment.
Next our solutions, we differentiate ourselves from others in our industry with the breadth of our solutions and our proven ability to serve customers across modes without switching service providers and our ongoing investments in our asset base and asset light business ensure we are positioned to win.
By introducing solutions like dynamic pricing, which helps fill empty capacity, we offer customers more sustainable ways of meeting their transportation needs.
Finally, our technology by dedicating time and resources in new and innovative solutions, we're able to improve efficiencies lower costs and overcome the operational disruptions. Our work on improving digital channels is a great example of this as we've been able to provide customers a better experience.
Parents through their ability to digitally interact while lowering our cost investments such as this will help drive continued growth for years to come as we solidify art best position as a leader in logistics innovation.
Our organic initiatives and commitment to embracing new technologies, while investing in our people will also help us continue to deliver excellent returns for investors.
As we look ahead, we remain grounded in our core business imperatives and continue to invest in these three key areas. Because we know there is tremendous opportunity in front of us. The last several quarters have proven that the strategy. We have in place is the right one to deliver impressive performance and significant returns.
As we move forward, we remain confident that continuing to successfully execute our strategic plan, well advance and accelerate art best positive growth trajectory and ensure ongoing efficiency gains and sustainable value creation.
And now I'd like to take some time to highlight additional details of our first quarter 2022 results and continuing business momentum then David Cobb will take you through the specifics of the quarter in greater detail. Dennis will then elaborate on our customer led strategy and Danny will speak to our yield management.
And finally I'll offer a few additional comments before we open it up for questions.
In the first quarter, we continued to see strong customer demand for all solutions, achieving record first quarter revenue and a triple digit percentage increase in non-GAAP consolidated operating income. The Modelo integration has clearly moved the needle for us it is progressing as expected and we're already seeing deeper customer.
Relationships were pleased with the progress we are making towards the financial goals, we laid out when we announced the acquisition having more than doubled our number of carrier partners to provide more resources for serving our customers.
Our customers and employees have validated the benefits of having access to additional capacity we.
We are finding that in many cases, it is helping us to cover customer loads faster and it AIDS and business growth on accounts that are already integrated beyond the recent acquisition, we are growing our business and positioning art best for the future in other ways as well the partnership we announced in January with Phantom Auto the law.
Leading provider of human centered remote operation software also aligns well with our long term goals. It complements our existing innovation pipeline technology roadmap and partnerships and builds on the important work already underway to support our customer success. We are on track to begin piloting our remote.
It enabled solutions and customer locations later this year.
In our nearly 100 years of been business, we've consistently experienced seasons of volatility in the freight market and the first quarter was no different however, thanks to our balanced mix customer led strategy people centric culture and strong yield management and expertise we are uniquely well positioned to.
<unk> successfully navigate unpredictable market conditions as evidenced by our first quarter results.
In short art best is firing on all cylinders and I'm incredibly pleased and excited that our company is poised to continue growing meeting customer needs and delivering superior and sustainable results for investors, even during periods of market volatility and uncertainty and now I'll turn it over to David Cobb.
Thank you Judy I'll take this time to share details on our strong financial performance and provide an update on investments we are making to power our long term growth.
I'll begin by highlighting our consolidated information as seen on slide five.
As Judy mentioned, we set a quarterly record for revenues of $1 3 billion, a daily increase of 60% over the prior year.
On a non-GAAP basis consolidated operating income increased 166% to $109 million. Our adjusted first quarter 2022 earnings per diluted share grew 191% to $3 <unk>.
The effective tax rate that was used to calculate the third quarter 2022, non-GAAP EPS was 25, 4%.
Under the current tax laws, we expect our full year 2022, non-GAAP tax rate to be in the range, 26% to 27% and this may be impacted by discrete items that could occur throughout the year.
Slide six shows that our asset based first quarter revenue was $705 million in average daily increase of 26% compared to last year.
First quarter non-GAAP asset based operating ratio of 87, 7% is a year over year improvement of 570 basis points.
The adjusted operating ratio improved 690 basis points after neutralizing for the effect of gains from asset sales in both quarters.
First quarter daily tonnage increased three 6% and <unk>.
Daily shipments increased slightly total first quarter billed revenue per hundred weight increased 21%, including higher fuel surcharges.
We secured an average 9% increase on asset based customer contract renewals and deferred pricing agreements that were negotiated during the quarter.
It was the highest first quarter increase we've ever achieved.
The April information provided on slide seven is preliminary because we haven't closed the month.
The April 2022 asset based tonnage and shipment trends reflect changes in freight profile and business mix as the ABF freight network continues to be managed to optimize revenue, while serving customers with available resources.
As a reminder April 2021, total tonnage increased 29% versus April 2020, which was impacted by the pandemic.
Excluding comparisons to the last two pandemic years, the year over year and sequential changes in total tonnage in April 2022, where some of the best in the last 11 years.
Additional details on our April 2020 to business trends can be found in the 8-K exhibit to the press release.
Our best asset light key metrics are shown on slide eight in total first quarter revenue and art best asset light businesses increased 115% versus the prior year period, reflecting strong demand for logistics services. The addition of <unk> and how our events and revenue per event in the fleet segment.
First quarter asset light non-GAAP operating income was up 163% over last year.
During the recent quarter demand for our managed transportation expedite and international solutions drove significant growth in operating income is favorable market conditions and increased project work.
Done with cost control created greater operating leverage.
First quarter asset light EBITDA was over $29 million will more than double the same period of 2021 <unk>.
Preliminary asset light business trends for April 2022 had been provided in the 8-K exhibit to the press release release, which was filed this morning.
Solid customer demand drove revenue growth in expedite managed solutions and truckload brokerage. In addition, the positive influence of mellow truckload brokerage revenue on year over year comparisons as reflected in the preliminary April daily revenue increase of 124%.
Slide nine shows that we ended the first quarter with unrestricted cash and short term investments of $101 million.
Total liquidity of $303 million is at a healthy level and we were in a comfortable net debt position of wintered $58 million.
At the end of the first quarter the composite interest rate on all of our debt was two 4%.
Our estimated net capital expenditure range of 270 million to $290 million for this year remains in place and we continue to work with our revenue equipment suppliers to coordinate delivery of our planned tractors and trailers. We're also making progress on this year's planned real estate investments and facility upgrades necessary to support our growth objectives.
In the last few quarters, we have experienced increases in our accounts receivable balances. This was primarily driven by our consolidated revenue growth and an increasing mix of asset light business, which grew to 49% of total revenues before eliminations.
Our ability to generate solid operating cash flow combined with the strength of our balance sheet ensures we are able to simultaneously make investments in our business pursue value enhancing M&A opportunities and continue returning capital to our shareholders.
In January we completed our previously announced $100 million accelerated share repurchase and through the first quarter, we purchased another $17 million of art based stock.
On Thursday, we announced that the art Mis board authorized both an increasingly amount of allocated for share repurchases and an increase in our quarterly dividend. The total amount available for buying our shares is now $75 million and our quarterly dividend is <unk> 12 per share compared to the previous eight cents per share.
As we have described previously our capital allocation strategy focuses on investments in our business that have solid returns in that enhance our growth and returning capital to our shareholders remains a priority.
This additional authorization for share repurchases is an indication of our board's confidence in our strategy and a recognition of our current undervaluation by the market. This allows us to continue to offset the dilution of employee stock program and be positioned for opportunistic buybacks with excess cash flow.
Likewise, our enhanced dividend indicates our confidence in our sustainable operating model and cash flows we will periodically evaluate our dividend rate in payout ratio relative to the market in our industry.
From a leverage perspective, we will continue targeting investment grade credit metrics are strong balance sheet and anticipated cash flows this year offer us the opportunity to take these positive actions to increase returns for those who are financially invested in our company, while ensuring we are well positioned for any changes that might occur in the economic environment.
We are pleased to be able to share another record quarter.
Quarter results with you and look forward to continuing to build on our positive momentum and delivering industry, leading returns as we move through 2022.
Now I'll turn it over to Dennis Anderson.
Thanks, David our customer led strategy continues to drive results and produce long term value for our stakeholders.
Over the past decade, as we strategically shifted from being a pure play LDL provider to an integrated logistics company. We've seen a dramatic difference in the level of partnership we're able to develop with our customers.
Our ability to address their unique needs with integrated solutions is a key competitive differentiator and we are proud of the deep relationships. We have fostered as we continued to deliver a best in class customer experience.
Judy mentioned earlier that our people are at the heart of our success and that's why investing in our best in class candidate and employee experience is critical to our growth strategy.
We hire the best people in the business and invest in our culture to keep them in fact for many of our most critical roles. The biggest driver of turnovers retirement.
When we serve our employees well they serve our customers well.
Because our people are engaged and empowered we're prepared to navigate whatever uncertainties, we may encounter.
In the first quarter, we held nearly 20 hiring events in key ABF freight locations across the country to support growth and meet our customer needs.
Despite a competitive labor market.
These asset based hiring initiatives were successful, adding over 600, new people across ABF.
Our award winning training program helps effectively prepare these new employees to contribute to our future success.
We've created a winning culture and made art best an amazing place to work and build a career filled with purpose.
These are key differentiating factors that ultimately position our company for continued growth and value creation.
We remain as committed as ever to investing in our people through supporting there will be and providing continuous growth and development opportunities.
As we do that they are continuing to build trusted partnerships with our customers that are the foundation for our growth for years to come.
And now I'll turn it over to Danny LOE.
Thanks Dennis.
Deep relationships with our large customer base and our carrier partners paired with our strong yield management expertise enable more efficient growth and increased margins, while improving customer relationships and retention.
Leveraging data across modes gives us a deeper understanding of our customers' businesses and our breadth of solutions enables us to be mode. Agnostic. So we can do what's right for the customer.
Because of our deep partnerships with our customers, we're able to have direct conversations to ensure the freight we put in both our asset base and asset light networks is most appropriately placed for the customer and for our operations.
We continue to see a robust yield environment across all solutions as David Cobb mentioned earlier, our 21% increase in asset based billed revenue per hundredweight reflected a solid pricing environment and higher fuel surcharges.
Additionally, the changes in our freight profile and business mix that resulted from our efforts to optimize our asset base network had a positive impact on our topline and operating results.
Within asset light revenue increased percentage was in the triple digits, while shipments grew in the double digits. We also saw strong increases in revenue per shipment, which reflected a strong yield market in a tighter capacity environment.
Even against the backdrop of uncertain macro conditions, we are confident in our ability to achieve the appropriate balance between volume and price by leveraging our yield management expertise across all solutions, we recognize the importance of having deep partnerships and we take a great deal of pride in serving our customers and our carriers with X.
Now I will turn it back over to Judy. Thank you Danny as we wrap up I do want to address a key area of importance for our business, our customers and industry ESG, we pride ourselves on providing access to solutions like managed truckload and intermodal that naturally drive efficiencies to improve the sustainability.
80 of our operations and our customers' supply chains, we are actively committed to pursuing activities and initiatives that align with our mission to connect and positively impact the world through solving logistics challenges last week, we were pleased to celebrate Earth day by participating in the freight waves net zero carbon.
And that as a member of their carbon working group, we are looking to providing a comprehensive update on the progress we are making on our ESG initiatives. When we release, our third annual ESG report in the second quarter sustainability matters to us it matters to our customers and our shareholders.
And it is an important element of our strategy going forward, we remain committed to operating safely efficiently and responsibly, while facilitating global commerce and creating value for our stakeholders. I'm also pleased to share news about a couple of awards. We recently received last week Forrester and now.
That aren't best was one of its return on integration honors winners. This was based on our success in integrating marketing sales and product functions using a data driven approach to align business goals and to optimize resources to better serve customers also last night in Orlando ABF freight.
One the 2021, a T. A excellence in claims and loss Prevention Award in the L. T L Division for the ninth time.
No. Other carrier has won this prestigious award that many times. Both of these awards are testaments to excellence and collaboration to have art best corporate values displayed by every employee throughout our company in closing we remain confident in our growth trajectory our earnings power and our ability to successfully navigate.
Whatever market conditions may impact our supply chain, we're positioned to perform more consistently through cycles by diversifying our service offerings and strengthening our customer base, while limiting our exposure to short term market pressures I am proud that we have this strong free cash flow and financial flexibility to advance our balanced capital.
Little allocation strategy by extending our share repurchase program and substantially increasing our best quarterly cash dividend.
The successful execution of our strategy rooted in an integrated approach that enables us to be a true partner to our customers allows us to accelerate our capital return program, while simultaneously investing in the business and maintaining a strong balance sheet and finally, our people work hard every day to serve our <unk>.
Customers with excellence in our first quarter results reflect those efforts that concludes our prepared remarks, David Humphrey. We can now open the call up to questions.
Okay, Frank I think we're ready for some questions.
Thank you.
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Our first question comes from Chris Wetherbee with Citi. Please proceed.
Great. Thanks, Good morning, guys.
Good morning.
So.
Maybe first on the <unk> side thinking about the volume environment. So thanks for giving us the April tonnage obviously the comps in the second quarter are very challenging given the growth you saw last year wanted to get a sense of kind of how you're what you're hearing from customers and sort of the.
Generalized pace of activity have you seen a deceleration if anything it looks like a bit of an acceleration in terms of your demand. If we're looking at it on a multiyear stack basis. So just wanted to get a sense of how you are feeling and what your customers are feeling.
Hey, Chris This is Dennis and thanks for the question this morning.
Customers are still definitely talking to us about meeting their customers demand and looking for ways to do that.
Conversations we've had with them is they're still feeling some of the labor labor shortages impacting their supply chains.
Definitely.
Just having some slowdowns related to shortages and backlogs ongoing maybe in there in their supply chain, but other than that they they are still telling us a strong demand and really looking ahead to meeting that demand and we're seeing that in our business as well.
Okay. That's helpful. And then just when we think about the pricing side.
It sounds like double digit increases on renewals I guess, how do you think about the sustainability of the durability of the pricing environment that we're in right now it sounds like demand is fairly good and is it possible to continue to see these double digits last throughout the year you do have some challenging comps that we're beginning to get into just wanted to get a sense of how youre thinking about that process.
Chris This is Danny.
You hit a couple of key points there the comps do get harder as we go through the second half of the year.
I'll tell you our focus is just continuing to have conversations with our customers.
Making sure that we're compensated for the value, we're providing to our customers.
Dennis said right now the demand still for our services for our customers is strong.
And we'll continue to just have the conversations and make sure we're providing providing that value to our customers.
Okay.
Just wanted to I'm, sorry, I just wanted to follow up on 1.1 part of that I think one thing that we do that really helps and you know both Danny and dentists are part of these conversations is approaching the customer looking at their situation from their perspective, I think we we have credibility and trust in these.
And shifts because we're able to do that and that helps with a view of value creation coming from them and you know as you're going through these uncertain times that really helps.
I think the other helpful Judy.
Had a key point in tier two just with the breadth of solutions being mode agnostic kind of plays in that dynamic of what you talked with our customers.
The right solution for the customer might change as you go throughout the year, depending on their situation and what the market capacity is at that time.
Okay that makes sense I have a few more but I know I'll get the hug from David So I'll pass it over thanks, so much for the time. This morning appreciate it.
Our next question comes from Ravi Shanker with Morgan Stanley . Please proceed.
Hey, this is Christine Lagarde answer Ravi Thanks for taking the question.
Good morning, Christine Good morning, how are you guys.
Good.
Just wanted to maybe ask the question clearly there's a lot of concern about the cycle dynamic here. So maybe I can ask a two parter and how are you guys thinking about the cycle kind of from here what are you guys seeing.
On that front.
Going back to the volume question from earlier, but then two perhaps more importantly, regardless and kind of how you guys are thinking about it you know the O. Our performance coming out of the pandemic and you guys have been really really strong maybe you can talk about how youre thinking about the sustainability of those gains and kind of what you think the O arm might look like if we do enter a bit of a softer backdrop.
Okay.
Hey, Christine this is Danny I'll start off talking just about the environment.
I think if you listen to our competitors on the other calls there has definitely been a softening in the spot truckload market.
And so we acknowledge that and see that but.
We're confident in our ability that we have multiple solutions is to provide the right answers to our customer and so we know that we have significant market opportunity for us within our customer base and so to us the cycle does matter, but it doesn't matter as much because we feel like we can grow through any cycle with the opportunities lies in front of us and so I'll kind of turn it off.
So for the back end of the questions for.
Yeah. Justin this is Dennis I'll add onto that I mean, Danny generic in the opportunity set that we have in front of us.
Tremendous and so we think about.
Through cycles for our business the growth opportunities there.
And as you mentioned, we've seen some margin improvement in our business and that growth has also helped with that margin improvement and so.
We're focused on capturing that market opportunity, we've got our sales and marketing teams are aligned with that approach and our customer service teams as well.
And I feel really great about the pipeline that's in front of us to grow from here.
Got it really helpful and maybe just as a quick follow up to the commentary about the spot market I know, it's not kind of one for one clearly with.
What you guys are doing day in day out, but how should we think about.
The transactional business that you guys used to kind of help balance the network is there any risk maybe in that particular segment.
The T. L spot you know start to flow in the truckload market as a whole start to slow.
Yes, so so two things there one in the truckload area itself, what we see is.
The model works and this is part of the one of the reasons for the acquisition of Polo is the additional cost.
Contract business and so you'll see us of the contract business as a percent of total truckload continue to grow through kind of a deflationary type truckload market. So the.
The expertise of the guys there to balance that as we're just well positioned to to walk through that much better than we have been in the past I think the other question was kind of about the asset based network and the dynamic pricing and so you know to this point we've seen no.
No deflationary or are lowering of demand in that market.
Got it through studying we appreciate it.
Thanks.
Our next question comes from Jack Atkins with Stephens. Please proceed.
Okay, great. Thanks for taking my questions.
Good morning, Judy So I guess, maybe maybe first question for Danny could you maybe update us on the integration of <unk>, how is that going and.
Based on what we're seeing in the spot market today, and some deflationary pressure there does that perhaps maybe pull forward your accretion expectations for below.
And then maybe earlier this year just would be curious to get an update on that.
We won't get into specifics on the on the mellow kind of the accretion piece, but I would say that Judy mentioned earlier, we're pleased with where we are in the integration.
And honestly, we're still actually in the first stages of it.
We are integrating some of our accounts into the mobile platform right now.
We're looking to roll everything together have all shipments on our platform by the end of the year.
But what we've seen from the first pieces of integration of moving these accounts into the mobile platform is just the access to better capacity, we're serving our customer better and that's resulting in better margins and is also resulting in growth of loads per day for those accounts that we bring over there. So so the business rationale for the acquisition is still strong.
With what we've seen.
We are still in the early stages of getting the technology aligns us to get all shipments on the same platform, but we're making progress there and we're comfortable with where we are.
But at a declining.
Right in the spot market would not make accretive sooner Danny.
I think in a deflationary market I'll mention again that <unk>.
Contractual business helps you in a deflationary market and that Malo.
To help bring us to a closer balance of contract and spot to where we want to be on the long term and their expertise in how to manage the market helps with that too.
Okay. That's helpful and then I guess, maybe for my last question.
David Cobb.
The reference in the 8-K around.
Sequential change in operating ratio typically first quarter second quarter, it's 200 basis points of improvement.
Obviously, you've significantly outperformed normal seasonality in the first quarter can you maybe help us think through.
Is it correct to maybe assume normal seasonality this year or are there some puts and takes we should maybe keeping the back of our mind as we're updating our model.
Yes, Thanks, Jack and the 200 that you referenced.
I think the fourth to the first but with 400 points is what we we have historically seen as we pointed out in the last five years from first to second.
We always have some positives and negatives I think in the quarters and.
I just I would just say that there is nothing significant to call out at this time. It is believed to have an unusual impact going from the first quarter to second quarter.
There's a lot of lot of things going on with the business environment, and we're managing that very well as you heard from from Dani and Dennis So.
Okay Alright, thank you for the time guys appreciate it.
Thank you.
Okay.
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Hey, Thanks. Good morning can you remind us what good morning can you remind us what the wage and benefit inflation is for this year and I think that there is no incremental profit share given.
Given where the already is that right.
Yeah, Scott on an overall basis, the wage and health welfare pension benefit.
Annual increase is on average been about 2% when you put all that together and then were.
<unk>.
And at a level of or that that's at the high end of the.
<unk>.
Or incentive which is a 3% of wages that's pay down. So we're encouraged to be able to do that and so I think our employees.
I appreciated having that option there.
So I mean, if we have another year I mean, if we're starting with high single digit pricing increases and we've got wage inflation of two.
We're setting up for another.
Pretty dramatic year margin improvement is that a fair way to think about it.
Well I think thats. The idea is that we we price for.
For value and that price exceeds inflation and we're looking as we've talked about investing in the business and the growth opportunities that we have.
So we want to grow and through this.
We're investing in both the facilities and technologies our people across the board. So I think the momentum is good and the opportunity for margin improvement is also there.
Okay, and then just real quick the Panther business used to be one of the first places that saw the world start to slow down maybe just give an update what you are seeing expedited if youre seeing that slow at all with spot.
Scott. This is this is danny.
Yes.
Expedite was a strong contributor to the first quarter for US there were some project work and that so we might have a little headwind in the second quarter.
Seeing a little bit of disruption in the auto supply chain that impacts that part of the business, but other than that.
<unk> strong environment for us.
Thank you for the time guys.
Thank you.
Our next question comes from Todd Fowler with Keybanc capital markets. Please proceed.
Hey, great Thanks, and good morning.
So Judy.
Hey, Judy good morning.
This is probably a difficult question to give really precise answer too, but I would just love some of your general thoughts and I think this was touched on a little bit earlier, but.
Kind of pre pandemic first quarter, the LR would be mid to high <unk> or something like that and now we're sub 90, which is fantastic.
How do you think about the drivers behind that.
How much of that is related to structural changes efficiencies within your business versus just the macro environment and some of the pricing strength that we've been seeing kind of any thoughts on what's really contributed to that level of margin improvement could be helpful.
But I think it's a combination and I know that's probably what you would expect me to say that it truly is and it's so interesting tied to reflect on how our business is managed today, particularly the asset based business.
It is a very.
Very responsive as a network to customer needs. There is a lot of demand.
For the asset base services, but it's been interesting with all the supply chain disruption and just different.
Parts or parts of the country coming back at different times, and all of that causing some imbalance in the network. So it's been a very active process.
Not only to manage yield in terms of you know just on a.
A typical piece of business, what that's worth the following year, but what that means in terms of the network and then adding to it you know other freight that can better balance the network and we really have a team that does a great job with that the visibility that we have in the business is better and allows.
Has to be.
More optimized but at the same time, we're very challenged at times with things like for instance in the first quarter. You know we had some challenges with labor in Covid cases, and all of those kinds of things too. So you know I really credit the team for overcoming those.
And you know, creating the scenarios for our best customers that work well for us, but I'll say this Todd we still have a lot to do we have a lot that we can see.
Using.
Some more expensive purchase transportation.
And other external resources that could better better be handled if all things were balanced, let's just say and so we see a lot of opportunity there and David mentioned that the opportunity to grow.
And we see that.
Creating greater sustainability, a more optimized to answer and just overall better answers for customers that matter to us and so anyway. It's a it is a combination of things, but I thought I'd give you that additional color.
Yes, no and I knew it was a difficult question to give a precise answer to but I think it kind of brings together the comments the team's been making throughout the call that the network itself is just more dynamic than what it was in the past and we can see that in our results. So I appreciate those comments.
Just for my follow up question you just touched on this a little bit Judy, but can you give an update on the capacity expansion the terminal growth for this year and any.
How that's going and basically any costs associated with that in the numbers or expectations for the rest of the year. Thanks.
Okay.
Yeah, Hey, Todd This is David I'll just comment on this.
We mentioned as you mentioned.
Got a plan in place alone is really a long term plan multiyear plan too.
To expand improve our asset based facilities.
And so we're we have begun that we've done some remodels that have been well received by our employees. It was good to see and and but we're working on some expansions at some current locations.
And so that's progressing as is as we intended and as we've said before we're looking to get to sort of a.
The percentage increase and ability to handle shipments in the mid single digits sort of an increase range by the end of the year and so that's still on our targets.
Great. Thanks for the time this morning.
Thank you.
Our next question comes from Jordan Olinger with Goldman Sachs. Please proceed.
Alright, yes, just a question on the asset light side of the equation you had a pretty big step up in margin percent, but really profit dollars I'm just.
Wondering if you could highlight a bit more.
That step up was it purely the revenue side or is it stuff. That's happened on the tech side Thats driving more profitability, but maybe talk a little about sustainability of.
The level of EBIT, you're at in this area. Thanks.
Jordan This is Danny.
When I look at the first quarter results, we saw strong revenue growth really across all the service lines and so when we think of our asset light and kind of the scale that we're at we still have a lot of fixed costs and so as we can grow and add at net revenue to it we feel comfortable that we can manage the costs that are going along with that so that we can we can drop a lot of that net revenue growth.
So the bottom line.
So George I mean genocide.
Okay Sir.
Sorry.
I would just add the customer momentum around asset light services is really strong as well and talk about our pipeline being strong.
That's increased greatly in the conversations with customers about truckload since the Mojo acquisition, it really improved as well and so we feel great about the ability to sustain momentum in terms of demand there at Allen asset light as well.
So I guess in terms of the $27 million or so in EBIT dollars I mean is that.
Is that is that.
A level that we should think about sort of.
I know, there's going to be fluctuations, but if we sort of moved to a new plateau. If you will.
Well you know I think we have been building to this place for a lot of years Jordan.
When I think about the acquisitions that we've made you know the latest of which would be mellow, but even when we bought Panther back in 2012, we've been working toward this suite of logistics solutions that works well for customers in any environment and I like where we are.
Got a lot to do on the integration side with mellow.
But we are we feel like those longer term targets that we put out there you know the overall company.
<unk> been at $7 million to $8 million in 2025, you know with the asset base margins, 10% to 15% and then the asset light it between four and six.
We're still confident in those end and working toward them.
There can be different environments and things that you are faced with but when I look at how we're able to navigate to that place that works well for customers.
This set of solutions is going to serve us well in any environment and debt to dentist. This point with the opportunity set that we have both and the market, but specifically within our customers. We've just got a lot to go and we really haven't been talking too much about the tech side of things. That's that's an evolution in our company is.
Well so.
But thank you for the question.
<unk>.
Okay.
Our next question comes from Ken <unk>.
With the OE. Please proceed.
Hey, great good morning, Judy and team work, yes.
So just all of them.
Quick question on inflation, right, so youre raising rates ex fuel double digits, Judy going back I guess looking at different cycles in.
I mean, the most recent cycles I guess, we're really different we didn't really have the level of inflation interest expense or interest rate rise that we do so whats your thought on the impact of <unk>.
The trucking business and customers when you look at the impact on inflation.
What how they cycle can be different than the last one or two that we've seen.
Well.
Certainly an impact probably the biggest impact that comes to mind is the the effect that fuel has as a part of our overall rates on customers.
The fuel surcharges, a mechanism that is negotiated or as a part of our rate structures that we use with customers.
And you know.
It's just kind of naturally progresses. So we don't from a discussion standpoint worry with it too much that way, but what it does impact us what their pain and so I think.
Again, we've recently had more customers coming back to us with our supply chain optimization conversations because when they're looking at the impact you know, it's it's an impact that causes overall cost to rise and it comes into their equation for what theyre doing in their profit margins for their customers.
And they want to talk about how we can do it better and I keep coming back to the way that we're positioned and it really works well for us to be positioned the way that we are in those conversations because rather than it being one solution that is impacting them a certain way. We can we can look at their supply.
Hi chain and figure out what works best for them.
So it's a great conversation for instance, we're seeing our managed solutions really grow.
And again, that's the conversation that you have is what how can we help you do this better with cost all in.
But the other thing that's been interesting is just the interest level that our customers have in these innovation conversations with us we've noticed it.
With the investments that we've made in some of our R&D projects.
Customers are very reflective on how they're impacted by inflationary costs or labor challenges and.
And we because of how we're positioned we've been invited to those conversations to help them solve those problems, which I really like and so again youre not just talking about a solution that's.
More expensive than they want it to be but it's just an overall conversation about how their business can be better.
But.
In the business you know we have costs that are we're having to manage one of those areas that I would like to see us.
And be able to reduce would be those.
Purchased transportation areas, maybe rented equipment those kinds of things if we can be more successful in bringing on people getting the delivery of our equipment.
And that sort of thing Theres, some natural benefits that we gain from how we can manage all of that better and it's just important to do that as well as the technology projects that we have in place getting them done and getting the benefits when you're in this environment, you really need to have that work done.
And so hope that answers your question.
No it does great and if I can squeeze one in.
The sustainability it seems to have shifted here for the <unk> segment, right with more business flowing us fulfillment centers given Amazon's slowing announcement. This morning T. F. I noted some slowing of the deceleration of the consumer at one of its businesses. What's your thought on the <unk> split and how that has structurally changed in the business to maybe.
That growth through the cycles.
You know that's interesting I mean, I do think the value of an LTE network and its ability to help.
Goods get to the ultimate customer is has grown is increasing.
We see the L T L market growing and serving customers well, but we also see combinations of things that work really well.
For both large customers and small.
And.
I mean, one of the great things for us.
Many years ago, 20, plus years ago with our U pack business, we got very very familiar with doing business residential delivery business with directly with consumers in homes and so we're we're very focused on that familiar with that but also the effects that that type of business can have on our network.
And we've learned to adapt to it and it's it can be as big of a part of our business as we want it to be let's just say because there's a lot there, but we like the industrial customers, we have and as well.
Then our retail presence as as a diversified part of what we do and I think all of that coming together helps you to have this sustained.
Our ability to grow and improve profits in the business.
Thanks Judy.
I appreciate it.
Our next question comes from Stephanie more with Truest. Please proceed.
Hi, good morning, everyone.
Hi, Stephanie.
I I think I, just wanted to touch a little bit on maybe some of the technology initiatives that you have.
Our plan for this year I know you noted the pilots are fans of auto in the second half, which sounds really exciting but could you just give us an update on maybe any other pilot. We can look for this year as well as some other.
The limitations as well thank you.
Yeah, Stephanie we'd spend.
$150 million annually about half of that goes on strategic spend and transformative type initiatives.
Those areas that we're working on city city route optimization line haul optimization.
Mark optimization, we've got some really good projects and all of those areas. We've got some projects that are helping us to create visibility.
For customers, which helps us with labor planning and other planning as well.
We're continuing to work on our dock handling pilot in Kansas City.
And.
Every everyday learning more about how that can be beneficial in the business and we also have conversations with customers about that type of work as well so along with the mention that you made a fan of motto.
We're really excited about that and then our digital advancement as a part of what we're doing as well the types of solutions that customers can use self help.
Or I'm, just self fulfillment on our website I think later this year into next year is gonna be a and just a helpful thing from both their standpoint, and a cost standpoint for us.
Got it and then I guess Gerry drilling in a little bit further is there anything as it relates to the <unk> integration or acquisition from a technology standpoint that needs to be implemented as part of the integration of revised birth that maybe you could update us on some of the technology that you're going to bring over from low to that the legacy business.
Okay.
Yes.
Stephanie This is Danny so we are migrating.
Our truckload platform over to the mobile platform and so there is a technology lay up there that's getting the systems integrator that were really in the middle of right now.
There's things there.
Automation digital that's within the mobile platform, we had our digital tools and the different things and so that would be.
The combination of the aggregate of that we're excited about what that holds for us as we go forward.
The first thing is to get the integration is to get the base done so.
Great well that's everything for me. Thank you.
The other thing I'll say real quick Stephanie is just the data I mean, we're just excited about how much information that we have you know and that just makes us better.
Understood. Thanks, everybody.
Thanks.
Our next question comes from Jeff Kauffman with vertical research partners. Please proceed.
Thank you very much and thanks for squeezing me in and congratulations everybody.
Thank you Jeff.
Two quick he's here because I know, we're running short on time, you talked about how contract.
Signatures were about 9%.
<unk> business you were signing how far are we through the customer re signing process for this year.
Well you know, Jeff what we end up doing typically on.
Deferred pricing and contract renewals is it's about a quarter of our business each quarter. If I mean, it tends to be a little heavier in fourth and first but by and large you know youre dealing with a regular part of our regular amount of that business each quarter.
Alright, so the way I should think about that as a lot of contracts still to resign.
Oh, Yeah, Yeah, I mean, it's just ongoing.
I think there is there is work that's going on right now.
With the truckload contract renewals as well.
I know we were talking about the asset based business, but we have that going on and we're learning even more about that as we get the integration going and done with no low.
Alright. Thank you and then just the second one.
Purchase transportation expense still pretty high I know a fair amount of that has to do with asset light, but spot rates are coming down in the marketplace.
How much of the purchase transportation inflation is the asset light business, how much of that is on the asset side.
How should we think about that expense trending.
As say tonnage slows down a little bit with the economy later, this year and spot rates move down as the year progresses.
Well I mean, I think we got again two different things going on I mean in the asset based business.
We use that level of purchase transportation to help balance the network and for additional resources as well as we are hiring in certain locations that sort of thing do you typically it's for line haul, but also in city routes will use cartage agents.
And and again.
Some of that works well in and can even be lower on a cost per mile basis, but.
Particularly in the city routes that cartage, we would prefer to do with our own people. So that's just a matter of getting people in place and regular operation there, but you know that they purchased transportation that we do with our asset light business.
We feel like we've gained an advantage with the mellow acquisition, one because we have more carriers and two because the.
The approach that they've used in some of the the tools that they have to.
It would be better informed about buy rates and that sort of thing. So we're encouraged and excited about that and it's again the acquisitions benefiting us.
And thank you for putting those details in the 8-K about purchase transportation as a percent of revenue for asset light I thought that was really helpful. That's all I have congratulations and thank you.
Thank you Jeff.
Our next question comes from Bruce Chan with Stifel. Please proceed.
Hey, good morning, everyone and thanks for squeezing me in here.
Hi, Bruce.
How are you doing just a quick question here on the portfolio I know that cross selling.
<unk> has always been an important part of your overall value proposition. When you think about the interplay of asset based and asset light and then Judy you mentioned you pack and then I'm also thinking about fleet that here as you think about those parts of the business. It doesn't seem like there's as much overlap there any any thoughts around how those fit into the <unk>.
Best story as we move forward.
Yes, it's interesting that you say that I mean, you know fleet net for instance, does provide services to a b F.
And and has a good.
Solution, our service offering for other carriers, but also has a very diversified customer base. So it's it's a an.
An interesting mix or fit with the rest of what we're doing but they you know I was talking to Gary Cummings, the leader of that company yesterday, and we were talking about how logistics oriented what they do is just anymore just trying to help their.
Their customers find the right solution for a given problem, whether it's preventative or emergency roadside maintenance.
The <unk> solution and they that was again developed a long time ago more than 20 years ago, but what it does is it helps us fill capacity.
Whether it's a nose load of the trailer or in a container in the trailer and so it's a great solution for consumers, it's kind of a do it yourself solution, but it was developed years ago to create an improvement in load average and in some cases balance and we have the ability to manage that.
By location the way, we'd like to so we feel like it fits and works well with the asset based business and has for a long long time.
Okay. That's helpful. And then just a really quick cleanup here.
Where are you in terms of average fleet age right now versus where you'd like to be.
Yes, it's a little longer.
David is probably has the details of that.
As we talked about.
Receiving some of our equipment, particularly our 21 units.
Drug out a little bit like we completed receiving some of those in the first quarter, but like a road tractors. There at two years average age city tractors about six and a half year average age.
Longer than we would like to have actually some but it should it will change by the time, we get to the end of the year pretty drastically yep.
Perfect. Thank you.
Thank you.
Mr. Humphrey there are no further questions at this time, please continue with your presentation or closing remarks.
Okay, well that we appreciate everybody joining us this morning that concludes our call and we look forward to seeing you in another quarter. 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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