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Thank you for standing by. My name is Danica and I will be your conference operator today. At this time, I'd like to welcome everyone to the ArcBest Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Amy Mendenhall, Vice President, Treasury and Investor Relations. Please go ahead.

Good morning. I'm pleased to be here today with Judy McReynolds, our Chairman and CEO, Seth Runser, our President, and Matt Beasley, Chief Financial Officer. We also have several other members of our executive leadership team available for the Q&A session. Before we begin, please note that some of the comments we'll make today will be forward-looking statements that are subject to risks and uncertainties which are described in the forward-looking section of our earnings press release and SEC filings. To provide meaningful comparisons, we will discuss certain non-GAAP financial measures that are outlined and described in our earnings release. Reconciliations of the GAAP to non-GAAP measures are also provided in the additional information section of the presentation slides. You can find the slides on our website, arcb.com, and Exhibit 99.3 of the 8-K filed earlier this morning, or you can follow along on the webcast. Before I hand the call over to Judy, I would like to thank David Humphrey for his 41 years of dedicated service to ArcBest, including 26 years leading our Investor Relations team. His contributions have been invaluable and I am personally grateful for his support in making my transition into this role seamless. David is in the room with us today and we will continue to work together until he retires at the end of the month. I will now turn the call over to Judy.

Thank you, Amy, and congratulations again, David, and good morning, everyone. I'd like to begin by thanking our employees. Your tireless efforts keep the global supply chain moving and your unwavering commitment to our customers relentless pursuit of excellence and adaptability in the face of constant change are truly appreciated. Despite navigating a challenging freight cycle, our focus remains on delivering for our customers while advancing our strategic priorities of growth, efficiency and innovation. Reflecting on past freight cycles, ArcBest is in a much stronger position today thanks to our long-term thinking and disciplined execution of our strategy. Seth and Matt will provide more insights into how we're investing in our people, solutions and technology to drive results, and I'm pleased with the progress we are making. The strength of our strategy has been reaffirmed as I've spent time with our customers and listened to their needs. They seek efficiencies by leveraging trusted relationships and using multiple modes of transportation. ArcBest strategy is perfectly aligned to meet their needs and demand for our services continues to grow. Our sales pipeline is up nearly 40% since January and continues to expand and progress into later stages. Our managed transportation solution, which helps customers optimize their supply chains, had double digit growth in both demand and revenue. Customer retention is solid. Over 80% of our revenues are from customers we've had relationships with for over 10 years. We are trusted advisors to our customers who value our solutions and utilize our offerings to enhance their supply chains. Additionally, we are implementing programs that benefit our bottom line. In the second quarter, we saw significant efficiency improvements in our asset-based business while delivering the best on time performance in five years. In a moment, Seth will take you through the initiatives driving these results and Matt will detail how they've improved our financial performance. All of this work positions ArcBest well for the eventual recovery in freight volumes. Before I hand it over to Seth, I want to highlight our recent announcement that Seth Runser has been promoted to President of ArcBest and Matt Godfrey will succeed him as ABF President. These promotions underscore ArcBest's deliberate focus on talent development and succession planning across our organization. Our results this quarter and the successful initiatives Seth and Matt Godfrey have led demonstrate why I'm so confident these appointments are the right steps for ArcBest. Many of you know Seth. He has been a key leader at ABF for years, delivering eight quarters of record results and overseeing the successful renewal of our five-year union labor agreement. As president, Seth has assumed responsibility for our day-to-day operations and execution of our integrated logistics solutions. Our operational leaders will now report directly to him. After the impressive transformation at ABF under his leadership, we are excited for him to take on this role where I'm confident his deep knowledge of the business and innovative spirit will help us continue improving performance for the benefits of our employees, customers and shareholders. I will remain CEO and Chairman of the Board, focused on advancing our long term strategy, driving innovation and further developing relationships with customers, shareholders and employees. Matt Godfrey's promotion is also special to me. In 2015, ArcBest started a Leadership Academy and Matt was one of the first to graduate from it. His success is a clear example of our commitment to investing in our people, and his achievements underscore the power and effectiveness of our development program. He has been working closely with Seth for many years at ABF and has spearheaded ABF's real estate plans, including long term facility growth and enhancement plans and transformational projects that enhance operations and drive efficiencies. I have no doubt he will continue building on Seth's progress and he is the right person to lead ABF going forward. And now I'll turn it over to our new president of ArcBest, Seth Runser.

Thank you, Judy and good morning. I want to start by expressing my gratitude for Judy's vision and leadership. I'm excited to serve our customers and employees in this new role, and I'm fully committed to ArcBest’s strategy of accelerating growth, increasing efficiency, and driving innovation. ArcBest’s innovative mindset and integrated solutions uniquely position us to help customers solve their most complex logistics challenges. And as Judy mentioned, our value proposition continues to resonate with customers. Now, let's discuss some of the key initiatives across ArcBest that are driving efficiency gains and delivering results for our customers. Starting with our facility plans, we are progressing well strategically, adding capacity, increasing efficiency and improving service. Our newest facility opened in June in metro Atlanta, adding city capacity in key markets and freeing up transfer capacity in our network. As expected, we're already seeing productivity improvements up 16% in these locations. We added four facilities from the yellow auction as replacements for current facilities. Two of those opened last month and we expect the other two to open this quarter after renovations are complete. Additionally, in the fourth quarter, we expect to add 66 more doors in Chicago, with another 40 planned in San Bernardino, California in early 2025. In addition to adding doors, we see a direct line of sight for these projects to significantly improve productivity. You have also heard us speak about our operation experts deployed to our largest facilities, focusing on continual improvement and operational excellence. This team's work has yield cost savings nearly four times what was projected and they will continue to move throughout the ABF network this year and into 2025. We are also advancing our innovation and technology projects. We have numerous active projects and a flow of new pilots in progress. Our city route optimization project, which uses AI to map our routes, continues to deliver significant efficiency gains, and we're expanding this project into additional phases. Our investments in innovation are paying off with direct results and value creation for our customers and shareholders. Our customers tell us they need better visibility into their supply chains. As technology has evolved, we're now able to do things that weren't possible just even a few years ago. Over the last several months, we've made enhancements to shipment visibility, providing customers with more data about their shipments and expanding visibility to even before the shipment has been picked up. With our large and growing database of shipment data, beginning this month, customers will receive more accurate LTL shipment arrival information. This is another example of how our technology investments are driving real improvements in our service and the value we provide our customers. In Asset-Light, our digital quoting and carrier portal tools are gaining momentum, shipment volumes have increased and we have maintained our focus on controlling cost. As a result, employee productivity improved over 30% year-over-year. We will continue to leverage technology for future productivity gains. In the third quarter, we will implement carrier payment and invoice auditing solutions from TriumphPay. By leveraging this technology, we expect to reduce manual tasks, improve efficiency, which will allow us to grow with fewer added costs, reduce fraud potential and improve our carrier partner experience. We believe that innovation will continue to transform our industry and ArcBest is committed to investing in innovation to drive future growth and create value. Now I'll turn it over to Matt to go through the financials in greater detail.

Thank you, Seth and good morning. I'm pleased to report that ArcBest delivered solid financial results for the second quarter of 2024 despite the softer market environment. On a consolidated level, second quarter revenue was $1.1 billion, a slight 2% decrease versus last year. However, our non-GAAP operating income from continuing operations rose by 28% to $64 million. Adjusted earnings per share increased to $1.98, up from $1.54 in the second quarter of 2023. Despite lower revenue and additional costs related to the new labor contract. Our Asset-Based business saw a $21 million increase in non-GAAP operating income compared to the same period last year. Our Asset-Light business experienced a $9 million decline in non-GAAP operating income, primarily due to current truckload market conditions. Now let's talk about our two segments in more detail, starting with our Asset-Based business. Second quarter revenue was $713 million, a per day decrease of 2%. The segments non-GAAP operating ratio was 89.8%, an improvement of 300 basis points compared to the second quarter of last year and an improvement of 220 basis points from the first quarter of this year. This improvement led to the second best Asset-Based operating income for second quarter in our history. Second quarter tonnage per day decreased by 20% and daily shipments were 5% below prior year levels. To maintain consistent capacity and labor levels in our network during the first half of 2023, we took on more transactional business as market conditions improved in the second half of the year, we reduced transactional shipments in favor of core shipments, resulting in 14% growth in core LTL shipments and 11% increase in core LTL tonnage on a year-over-year basis for the second quarter. This shift contributed to improved productivity and better financial results. Year-over-year build revenue per hundredweight increased by over 23% in the second quarter, driven by strategic price increases on transactional business and a higher proportion of core business, which has a higher revenue per hundredweight. We secured an average increase of 5.1% on our customer contract renewals and deferred pricing agreements during the second quarter, demonstrating our continued pricing disciplines. By optimizing our freight mix, improving productivity and lowering costs, we offset higher union contract costs, achieving higher operating income despite lower revenue. On page 11 of our conference call slide deck, we illustrate the significant impact of these actions on our second quarter results. Sequentially, compared to the first quarter of 2024, the segment saw low to mid-single digit percentage improvements in revenue tons and shipments per day, revenue per hundredweight and revenue per shipment. We are now one year beyond several major events, including a competitors bankruptcy, the start of our new labor contract, and the implementation of our freight mix management and cost savings initiatives. For the trailing twelve months ending June 30, 2024, our non-GAAP operating ratio was 89.5%, an improvement of 840 basis points since 2016, demonstrating the effectiveness of our strategy. The impact from last year's market disruptions began in mid-July 2023 and peaked from August through October. Based on preliminary results, total revenue per day and shipments per day both increased 1% year-over-year in July. We anticipate that daily tonnage levels for third quarter 2024 will be below the prior year. As some of the core business increase that began in July 2023 was project related and some of the increased business has shifted to other providers over the past year. Pricing remains rational and the strength of our core business allows us to optimize spot prices for transactional business. On July 1, 2024, the contractual wage rate under our union contract increased and the health, welfare and pension benefit rate increased on August 1 for a combined rate increase of approximately 2.7%. Historically, the average sequential change in the Asset-Based operating ratio from the second quarter to the third quarter has ranged from flat to 100 basis point improvement. With the current market backdrop and cost outlook for the third quarter, including the previously mentioned contractual wage and benefit increase, we expect the third quarter 2024 operating ratio to be consistent with second quarter 2024. Moving on to our Asset-Light segment, second quarter revenue was $396 million, a daily decrease of approximately 4% year-over-year. While shipments per day increased 13%, revenue per shipment decreased by 15% due to the soft freight market and growth in our managed business, which has smaller shipment sizes and lower revenue per shipment levels. The non-GAAP operating loss of $2.5 million for the quarter was largely due to lower margins in the current truckload market. Compared to the first quarter of 2024, revenue per day was flat, but margins improved due to lower purchased transportation costs which increased in January due to winter weather. Shipments per day decreased slightly as customers using our Asset-Light solutions experienced lower demand in their businesses. Our Asset-Light offerings play an integral role in our overall strategy as customers seek long term logistics partners for all their transportation needs. Our Asset-Light solutions also allow us to serve a much larger portion of our customers transportation spend and there's a tremendous market opportunity for our truckload and managed solutions. In addition, 70% of our Asset-Light customers also use our Asset-Based LTL solutions. Our ability to meet our customer's needs at a price that reflects the value we offer is a key differentiator. Looking at preliminary results for July, revenue per day decreased 10% year-over-year due to lower revenue per shipment. While shipment volumes for our managed solution have increased. This growth has recently moderated due to lower demand from existing customers reflecting current macroeconomic conditions. Additionally, truckload volume has slowed as we strategically reduce less profitable freight. Purchase transportation expense as a percentage of revenue increased sequentially throughout the second quarter and into July as carrier rates rose. These higher costs have reduced margins for our truckload brokerage contract business. We continue to focus on improving productivity and reducing cost per shipment. However, segment operating profit will remain impacted in the near term by current truckload brokerage market conditions. For the third quarter of 2024, we expect non-GAAP operating loss levels to be consistent with the second quarter of 2024. For the first half of 2024, we returned $37 million to shareholders through share buybacks and dividends. We have a $57 million net cash position and $500 million in available liquidity. Our capital expenditure plan for the year remains in the $325 million to $375 million range. We are proud of our second quarter performance and our solid financial position. As Judy said, we continue to pursue growth, efficiency and innovation while delivering superior service to our customers and value to our shareholders. With improvements in operating costs and productivity and continued emphasis on growth initiatives, we are well positioned for the future. Now I'll turn the call back to Judy for some final comments.

Thank you, Matt. Before I wrap up, I want to highlight some of our recent achievements that reflect our commitment to excellence and sustainability. ArcBest has once again been recognized as an Inbound Logistics green supply chain partner in 2024. This honor underscores our legacy of good stewardship and our dedication to helping our customers advance their sustainability efforts. We are also proud to be named one of the best companies to work for, by US News and World Report and to be ranked as a best leadership team by Comparably. These awards are a testament to our ongoing efforts to make ArcBest a leading place to work and we're grateful for the recognition from these publications. Looking ahead, our team remains focused on continuing to deliver profitable growth through operational excellence, disciplined cost management and ongoing innovation. And that concludes our prepared remarks and I'll turn it over to the operator for questions.

Yes, thank you. [Operator Instructions] Your first question comes from Jason Seidl with TD Cowen. Please go ahead.

Thanks, operator. Judy, Amy, Seth and the rest of the team, good morning. Just two quick things here. One, if we look at that project business that you mentioned in July of last year, if we exclude that, would your tonnage be projected as positive in 3Q? And then, Judy, just in general, you know, there's a lot of talk right now about a potential recession. You get a good look into the economy as a national carrier. What are your customers telling you?

Hey, Jason, good morning. This is Christopher. I'll just comment on the project business from last year. So last July, like you said, we did bring on some of that just due to the market disruption. That was good business for us. That is definitely part of the story for the tonnage decline year over year. But it's not all of it. Some of it was just us on-boarding some of that core business for us that we were there in that time of disruption for our customers. But honestly, some of it went to lower cost providers that they were able to shift by the end of the year. So third quarter will be challenges from a year over year tonnage perspective, but we're still, we continue just to make good decisions in terms of the profitability and freight selection for our business.

Okay. And, yes, and just, just from a wait for shipment perspective, you've seen it just drop from second quarter into July, just that it's starting to moderate. I would expect that to continue to moderate through the rest of the year?

Judy, overall economy. Sorry, Jason, we missed part of that. If you had to follow-up.

No. Yes, I said no. I was asking Judy her thoughts on the overall economy, given that there's a lot of fear of a recession. Since you guys have such a good look into the macro, I was wondering what you…

Yes. Well, Jason, I think that we're certainly, being affected by those challenges. I think that what we see is that we're kind of working across the bottom here, and we really don't have a crystal ball as to when that will inflict. But, we feel like that we're well positioned, really, in any environment to succeed. We've got a pipeline, that's increased 40% since, the beginning of the year. That really includes opportunities across LTL truckload and managed to, which we're excited about. And the work that we do with customers in this kind of environment shifts more to looking at cost efficiencies for them. And the way that we've structured the company just really addresses that well. And, so while we don't have a crystal ball, we feel, confident in our ability to navigate through, the choppy waters as they, hopefully settle down and we can move to a more normal environment, but feel like we're well positioned regardless.

Okay. So that lowering weight per shipment is not that much of a cause of concern, then?

Well, it's been there. we've seen that and have navigated pretty well. We saw, a nearly 30% improvement in operating income in the. In the second quarter. And that was a in the face of some cost challenges and some macro challenges, but was overcome by a lot of great efforts to improve our operation, that relate to efficiency efforts as well as the completion of some tier one technology projects that we have.

Our next question comes from Daniel Imbro with Stephens. Please go ahead.

Yes. Hey, good morning, everybody. Thanks for taking our questions. I want to start on the pricing side. I guess looking at the second quarter, revenue per hundredweight, including fuel, was up sequentially, but fuel was down 1Q to 2Q. So I guess is the right read here that core pricing ex fuel actually accelerated in your business? And can you just talk about how you're thinking about core pricing trends into the back from the 2Q level?

Sure. Hey, Daniel, this is Christopher. So I would say in terms of just pricing trends, we remain disciplined in making sure that we're getting increases on our core business like we talked about, we got a 5.1% increase in the second quarter on our deferred negotiations. And that's just annual increases that we take on those customers honestly really proud of that result from our sales and our pricing team to get that just in this challenge freight environment that despite the environment, our customers are recognizing the value that we're providing and we're able to get good increases. I was looking back over history. That's actually the fourth best increase over the last 20 years that we've gotten in the second quarter. So really great result. And that's something that will continue through the rest of the year as well. So like you said, there was some progression from first to second. We'll continue to, to get good increases throughout the rest of the year as well.

And then if I can follow up maybe on the back half or outlook. Matt, I think you said or flattish in 3Q from 2Q? I think cost inflation is moderating a little bit. So I guess if revenue growth is improving and pricing is improving, why wouldn't that get a little bit better? And then can you just remind us what normal seasonality is on or from 3Q to 4Q. As we think about that? Thanks.

Yes, absolutely. So, I would say generally revenue levels are fairly consistent from the second quarter to the third quarter. You know, we did talk about, a range of zero to 100 basis points of improvement. when we look at things sequentially, just kind of considering the environment and considering the freight mix that we're looking at for the third quarter, we do think that it's. And just considering our cost profile that we're looking at, we know we do have an increase that goes in July 1 for our wage rate on our union contract and then a benefit increase that goes in, in August, which are at moderate levels but are still a little bit higher than what seasonality has been outside of last year. And so all those taken into account puts us at currently an expectation of roughly flat. I mean, certainly we had a very strong operational execution quarter in the second quarter. We've talked about just where our efficiency and productivity metrics, service metrics are very strong compared to recent history. And some of those metrics approach the highest in our company's history. And so certainly if we can continue that strong performance and that momentum into the third quarter, I'd say there's some potential for an improvement off of that, off of that flat outlook. And then as you're looking from the third quarter to the fourth quarter, typically we do see an increase in operating ratio when you move from the third to the fourth quarter. You know, that has been up to 400 basis points, if you look over the last few years. But I think with the revenue initiatives, with the strong pipeline that we talked about and with some of the efficiency work and just some of the productivity performance that we've seen in our network, I think we've got, a lot better opportunity for a more consistent result from the third quarter to the fourth quarter than we've had in past years.

Our next question comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Oh, hi. Sorry about that. Yes, I just wanted to follow-up a little bit on some of the trends that you had put out there for July. I think there was a couple more operating days in July versus a year ago, sort of maybe distort some of the per day growth? Just curious, is there a way to give some sense for how August and September might look broadly in terms of tons per day or revenue per day, taking into account the norm, the days, I suspect it should start to look better on a year over year basis for both those relative to July? But I'm just curious if you have any thoughts on that.

Hey, good morning, Jordan. So I think just, just the typical seasonality of our business, we see as you, as we all know, July has a holiday in it and we see that just typically their progression of growth from July to August to September, September being the end of quarter month, tends to be the strongest in the quarter. So we see upside in terms of just tonnage and per day shipments per day as you just move sequentially through the quarter.

Okay. And I guess sort of like, the same thing. we do start to enter a period of, tougher comps for the industry. post a year ago with yellow and now there's a bunch of terminals opening. I know you gave some color around price. It would seem like industry discipline is still pretty strong, but there's been some recently pretty difficult ism readings that came out yesterday, which wasn't particularly good. I mean, how do you think about the industry's ability to sort of take into account these terminal openings and these new orders index, which continues to be pretty soft? And how does the industry keep core pricing firm? Thanks.

Hey, Jordan, it's Seth. We're really looking at things sequentially because we think that's a better way to view what's going on with all the market disruption that you mentioned. So when you think about the ten year history on the shipments to Christopher, what he was talking about, normally they decline from June going into July, and we've actually seen about a half a percent increase as well as tonnage. We've seen that same type of result. Normally we're down about 5% and we're down only about 2% in July. So when you think about the industry overall in capacity, what's coming in from a real estate standpoint, we still see net terminals and capacity being down from when yellow was in the market. When we look at our investments and what we've been investing in, it's really strategic. I don't think we overspend on our capacity and we've had this long term roadmap that we've been working on for many years. So we're investing where we see growth opportunities or productivity improvements. Great example of that was Lithia Springs that we opened. I mentioned in my opening comments a 16% improvement in productivity almost overnight. So we're really focused on the service improvements because we believe that's what's going to lead to long term customer value. And we're seeing some amazing numbers there. Continue to win some external awards, but we think by focusing on the customer, that's going to position us well. But I do think industry capacity overall is going to be down over the long term. With this yellow capacity, there's still about half of their facilities not back online.

All right. Our next call comes from Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good morning and congrats, Dave, Seth and Matt on your -- Dave, on your moving on and Seth and Matt new positions you threw out there, the comment in it that peers were taking more share. I think the last few questions asking about price competition trying to get at that what -- maybe you can define how they're being aggressive in winning that share if it's not being on price? Because I think Judy also mentioned that somewhere we're just moving to more -- to different price providers. So maybe you can compare, contrast the comment about the peers taking share.

Ken, this is Christopher again. Just to clarify, that comment was really about the disruption from late last year. So we onboarded some core business in that late July, August time frame. We were able to be there for our customers. And honestly, there are prices that were substantially higher than what Yellow was providing them. And then there were some of those customers that were able to find cheaper options there. But that was probably over the course of the next 30, 60 days, that's all settled out. That was -- that quickly settled in the second half of last year. I see it at a much more consistent basis now and moving forward.

All right. Great. Then if I can just get a follow-up then on -- I just want to understand the transactional thing has caused so much confusion, I think, with your volumes, right? I mean, normally, when a company is losing 20-plus percent volumes, you're kind of scared and running for the hills, but yet your pricing is up 25%. So that tells you that the core is really kind of taking off here. But if you're still down 20% on volumes and your systems were kind of created that you could maybe do it more variable, why is it such a vicious move if you're not filling it up and the opportunity to keep taking that transactional volume with accommodative pricing, what's missing there that we're seeing such -- maybe such huge swings in that transactional volume.

Yes. So I think you got to kind of rewind the tape on that because 20 -- I go back to 2023, we continue to see the weakness in the macro. So we use that transactional tonnage to fill our network and keep employees working. When you think about the years throughout the pandemic, very challenging to find qualified CDL employees. So we thought that was the right strategy at the time. We were also going through our contractual negotiations as well, just as a reminder. So we started to see the Yellow story play out. So we wanted to keep our people working, but we also saw that, that could potentially happen. So after we got clarity on our cost with the ratification of our contract, the demise of Yellow, I think what we did, shifting strategies to more core business, what we really focused on was serving those core customers that come at a better price, better margin, more consistency, which allows us to plan labor much more consistently and why you're seeing some of the productivity gains. But it really is truly just a mix in our business. And I think it worked well when you look at our second quarter, generating $21 million more in op income with less top line revenue and almost $31 million worth of extra contractual costs. I think we handled that very well. But the way we really target transactional business is it's a daily decision based on profit maximization and capacity in the network. So I think now that our core is in a good spot with the Yellow demise, I feel like you're going to see more consistency as we move through the rest of the year and less of these wild swings. But it's probably going to take till about November to get there just because of the Yellow situation, then we have the cyber event later in the year, and everything was just still sorting out like Christopher pointed to. So that's why we like to look at sequential trends, and we feel pretty good about the progress we've made.

Can you clarify what percentage is left of the total base that's transactional versus contract or core sorry?

Yes. We don't provide that number, mainly because it changes so often. So the business is primarily core. Transactional business is really to help maintain consistency in the network and allow us to be positioned to when the network -- when the market does change. When you think about what we did in the first half to what we're doing moving forward, we feel like our mix is in a much better place and you'll see that.

Our next question comes from Bruce Chan with Stifel. Please go ahead.

Good morning. This is Matt Milask on for Bruce. On the Asset-Light business, can you comment on the mix of spot versus transaction at the moment?

The current mix on the truckload business, I mean, if you think about Asset-Light for us overall, that's several services. But on truckload business, we're roughly in that 60-40 range on contract versus spot. The other thing that's going on in truckload, if you look at kind of what we're doing year-over-year, we're continuing to see improvements in productivity and continuing to work through a strong pipeline of opportunities and really looking to the future and well positioned to grow as the market improves.

Can you walk us through the mechanics of the guide for the brokerage OR being flat, maybe what you're expecting in terms of gross margin compression, if any, and maybe some opportunities to take out some more costs.

Yes. The guidance there is basically attributed to the market conditions and just not seeing a strong indicator of a strong improvement in the second half. We'll continue to work through the opportunities that we mentioned in our pipeline. We also have a good road map of efficiency gains that we can see play out as we implement new technology and process. So we will continue to improve efficiency as we move through the rest of the year. But most importantly, we want to be positioned for the market to improve and to take advantage of that and grow as we see the market start to improve.

Great. And lastly, can you remind us of where you are in terms of door capacity utilization? And is there a way to tell what that might be if you wound the transactional spot business down to zero?

Yes. We feel like right now, as far as our excess capacity is what you're asking?

Sure.

Okay. Yes. So we estimate that we have about 15% to 20% excess capacity in our network right now. And that includes people, real estate, equipment. We've talked about our real estate plan quite a bit. So we feel like we built up to be able to handle this eventual market swing, and we continuously optimize the network and adjust based off the opportunities that we see to better service our customers. We really have a long-term outlook here. So we don't want to limit our growth potential when the market does turn, and that's why we've made the investments that we're making, we've continued to make throughout our network. So we feel like if the market does turn, we get more core business we want to grow with that. And we think transactional is a way for us to balance our network better and optimize that daily based on what the freight demand is and what the market prices are. So it's really a daily optimization and when the market turns, it should benefit us.

Your next question comes from Tom Wadewitz with UBS. Please go ahead.

Yes, good morning. I wanted to see -- you were asked a little bit about the weight per shipment on July, kind of, I think, July getting a little lighter versus June. But I'm not sure if I understand what the perspective is or got the perspective. Do you think that's like softness in economy a little bit? Or is that a function of some mix, and you mentioned project business going away? Was that project business heavier? Just wanted to see if you could give a little more thought on the kind of lighter weight per shipment in July versus June.

Tom, it's Christopher. I'd say it's both. It's the economy just being softer than obviously, we'd like to see. I think we've talked at length in the past about higher weight per shipment is a sign of an improving economy. And that hasn't turned the corner yet even on our core business. And then it's really from a year-over-year perspective, it's really all about this mix -- the majority of this mix management, just moving more towards core business that tends to have a lower weight per shipment than the transactional business.

So do you think the July look is representative and stable just in terms of mix of business as well as kind of, I guess, some of the business that had moved away. Is that the right look? Or do you think it's kind of trending further in terms of lighter weight per shipment as you look to August, September, 4Q?

I would say I don't see anything significantly changing within our view right now. Obviously, things could change, but what we've seen from June to July feels consistent. And obviously, moving forward, we'd love to see that improve, but we're still -- we're positioned well to respond to whatever the market gives us there.

Right. Okay. And then on the Asset-Light side as well, it sounded like you saw a little bit of softening in July, too. Is that just freight activity market getting softer? Or what's the Asset-Light read on what you're seeing in July?

Yes. We are seeing some drop in demand from current customers. A lot of that was associated with the first week of the month with the holiday. And then as we just continue to work through opportunities and make sure we're making good selections on the shipments that we add and that type of thing that impacted that as well.

Our next question comes from Chris Wetherbee with Wells Fargo. Please go ahead.

Hey, thanks. Good morning, guys. I guess maybe I wanted to come back to sort of overall volume and maybe your strategy. So if I look at tons per day down at levels that maybe we haven't seen in quite some time, shipments may be not quite as low, but still relatively low outside of maybe 2020. So obviously, improving the mix of the business, profitability hasn't suffered during that dynamic. But I guess, are we at the point where this is the appropriate level of volume. And I know we're in a softer market now. But as market comes back, would you be looking to grow into this? I know you have capacity. I'm just kind of getting a sense of where it is because the numbers are seemingly fairly low, but still sort of under some pressure on a year-over-year basis. Just want to get a sense of what the strategy is going forward.

Yes. I think the results in the second quarter kind of speak to what we're doing there. We're trying to enhance profitability while having capacity for growth. So like I mentioned earlier, it's better to look at the sequential numbers, and we're seeing improvements in our core weight per shipment, we just talked about that. We expect it kind of flat sequentially. Most of that is due to the market conditions and what's going on there. So you got to think the first year of the contractual wage increases were pretty large, and we were able to overcome that. You saw the cost productivity things we did. So we feel good about that moving forward. It's a much more reasonable rate at, like this year is only a 2.7% increase all in for wages in HWP. So that's going to allow us to make some gains on growth and yield. We knew that this business would continue to shift post disruption. So that's why we're saying it's better to look at that sequential history. We believe that the environment is going to be -- continue to be kind of unpredictable. We've heard about PMI and what's going on there. But what gives us a lot of confidence in the future is a 40% increase in our sales pipeline since January, as Judy mentioned in her opening comments. We've had some of the best service numbers over the last 5 years, so we're providing value for our customers. We've been celebrating our 40-year quality anniversary, and our people have taken that to heart. We've really seen that resonate with our customer retention numbers and our efficiencies hitting multiyear high. So that allows us to improve service, capacity for growth and just it impacts the bottom line cost measure as well. So we continue to see those benefits and I feel like that momentum is going to take us forward for continued growth, and we build the capacity for it. So we're continuing to execute on growing our core business while optimizing that transactional mix based on what the market is doing.

That's a really helpful answer. I appreciate that. And maybe if I could zoom out the lens a little bit and think about the industry over the next couple of years. So you noted, you have 15% to 20% excess capacity, I guess, if I go around sort of the horn of the other public carriers, I think having that much, maybe in some cases, more extra capacity, Yellow kind of down, cut in half from a capacity perspective in the market now. I guess do you see the market dynamics changing at all in terms of the ability to get price or profitable mix improvements as we move forward? Or is it that there is enough growth and maybe there's some freight that's outside of the market that comes back in, in a tighter environment? Just kind of curious how you might see the next sort of cycle play out for the industry?

Yes. I think we're really well positioned for growth. And I think we demonstrated that at the middle of last year when we had similar excess capacity, and we were able to meet the demands of our customers that had that disruption. We were able to onboard that business quickly without really missing a beat from a service standpoint. So really, we're playing the same playbook that we played last year. We have the excess capacity. We still have the transactional lever that we could tampen that down even further if needed, core business grows further. So I feel great about our position to bring on additional growth when it's available.

Our next question comes from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good morning. Thanks for taking the question. Let's go back on the service improvements. Just wanted to see what's the feedback from customers so far. I know the Mastio survey is going on again right now, but it's been a focal point of improving that over the last couple of years. So what are customers saying right now? And when do you think you start to see this sort of in either the freight mix or the pricing, can that start to improve next year if things kind of bounce along the bottom? Or would that really be something you need an up cycle to help monetize if service does continue to improve?

Yes. We really -- when you think about our service levels, we have a commitment to excellence. And historically, we've been in a really good spot on the Mastio survey. We've made a lot of improvements since last one came out. We do our own internal surveys with customers to measure our NPS and our internal scores have continued to improve consistently quarter-after-quarter, and we're seeing that in our own internal metrics as well because we've improved tactical execution, the shipment visibility. I mentioned in my opening comments, we've made a lot of efforts to improve in that area. And all the optimization efforts, when you improve efficiency, you improve your throughput, which in turn generates better service for our customers. So we have better visibility into network issues. So if we do see an issue popping up, whether it's labor, whatever it is, we can react much faster and resolve those issues before it impacts our customers. And that's because of all the data that we have and all the infrastructure that we built around network visibility. So the real estate plan, obviously gives our customers more capacity. But I feel like with our service metrics being at a 5-year high, continued internal NPS improvement, we feel like that's going to continue to benefit our customers. I've spent a lot of time with customers throughout the second quarter, and they've communicated back just the difference that they feel in our service level. And we think that translates to long-term value for our customers.

Yes. Just from a price perspective, yes, obviously, the value prop that Seth is describing plays into that price. And really, we just want to be at a consistent place where our price is outperforming our cost increases through -- so we're winning both from a price standpoint and from a cost management standpoint to improve our op income over time. So the value prop is definitely a big play there in terms of just getting the increase and retaining the customers that we have. The other thing I would just comment on is that our price is the highest in the market. So our price is already at a really good place. And so there's an opportunity likely for other carriers to catch up with where we are on a price basis.

Okay. That's helpful. Just to switch to the broader truckload market, it doesn't sound like you're seeing or expecting much of an improvement from that perspective. Just wanted to get maybe a little more commentary on that, what you're seeing here in July and into the typical peak season and just in general, how that would impact some of the truckload spillover freight in ABF and how you might be able to offset some of that on the Asset-Light side?

Yes. I mean, from an overall perspective, we feel like we're at the bottom, but we're not really seeing anything that's just a strong indicator that things are going to improve rapidly. We're like a lot of others, just feel like we're at the bottom and moving towards a time of improvement. But one of the things that we are confident in is our team, how we're positioned, the MoLo team specifically in the truckload space, we provide a great service. Seth mentioned NPS. That's one of the kind of high points that we have with our truckload service. We see customers continuously telling us that we're doing a great job there and really appreciate the service and value we provide. So we're well positioned as the market recovers. But like a lot of others, right now, we're just looking for that improvement, but we're not seeing anything that tells us that there's a dramatic improvement coming in the third quarter.

Our next question comes from Stephanie Moore with Jefferies. Please go ahead.

Hi. Good morning. I wanted to touch on -- I think you mentioned clearly driving some cost initiatives and other productivity initiatives in the second quarter and expectations so that continue as the year progresses. And I think on both the Asset-Based and Asset-Light side, could you maybe give us some more examples of some of the actions that you've been putting into place on both sides of the business?

Yes, Stephanie. When you think about how many cycles and what we've been through, we have a long history of adapting to challenging environments. And we really go out to the field, listen to our people, get feedback from employees, and that really shapes what we have to do to service our customers better. So we built those tools for better network visibility, labor planning. We invested in those operational experts that I mentioned earlier. They've only been to 4 of our largest locations so far. So throughout the third quarter, they're going to visit the next 3, which are very large distribution centers as well, and we'll continue that throughout the year. We also rolled out city optimization last year. We saw a material benefit from that. We're rolling out the next 2 phases of that, that have been in pilot mode throughout the second quarter. So we think we'll get to operationalize those in the third and fourth. We're also in the process of rolling out new dock software and that creates better visibility for our people, our customers and allows us to see, by employee, productivity levels, and we have that implemented at 97 locations, and we think we'll finish that rollout in the first quarter of 2025. I mentioned the productivity improvements in Lithia Springs and what we saw in Olathe in the first quarter. So we'll continue to see productivity as these real estate initiatives come online. We also have a lot of projects in pilot phase right now that we expect will operationalize throughout the back half. So we're really excited about our pipeline of innovation projects and the efficiency gains we're going to see as we move through the back half of the year. That's some of the upside that Matt talked about.

Great. And then just switching gears to the truckload side of the business. I'd love to hear your thoughts on what you're hearing from an overall freight cycle standpoint, I think we've heard of capacity exits for some time now, but really not to the extent that or the magnitude that we would hope to get us out of this. So I'd love to hear your overall thoughts on just capacity exits on the supply side of the equation.

Yes. I mean what we're seeing is the capacity is coming out of the market. It's just at a slow pace. And so without a dramatic increase in demand, it's just taking some time for that to get to the right balance. But we are seeing movement in capacity coming out of the market, which is a movement towards a more balanced market. Like I said, it's just slow -- kind of a slow movement in that direction.

Our next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead.

Thank you very much. And best to David Humphrey's and congratulations, Seth and Matt. Really 2 questions. When we think about the cost per pound versus revenue per pound dynamic, it's been shifted negative because of the big wage increases in the union contract. Now you have the July, August increases. When do we get a chance to offset that with the GRI or an increase in the revenue per pound? And when do we see that relationship flip more to the positive? Do we have to wait for January 1? Is it something that could start to happen in the fourth quarter?

Yes. Jeff, it's Christopher. Just from a GRI perspective, so our last GRI was October -- early October of last year. I think our normal trends are in that 10- to 12-month cycle. So if you kind of do the math there, we're getting up close to that GRI cycle that we would normally have.

Okay. But you haven't made any announcement at this point that's probably still a little ways away, but we don't have to wait for January to see a GRI, hopefully.

Yes. If history plays out like it normally does, like I said, 10, 12 months. And yes, we haven't announced anything formally yet, Jeff.

Okay. No, I thought the LTL business looked great. My big question is on the Asset-Light and not to be throwing rocks here, but it doesn't make sense to do business for practice. And it feels like we're doing that with Asset-Light. Now I recognize the difference in the contingent consideration accounted for about $14 million of the swing. So I do understand that that's a little odd. But with Asset-Light so challenged. How are we raising contingent consideration for MoLo and maybe break down what's going on, on the Asset-Light side a little bit because it's not just one business, it's a series of businesses. Why is the loss not getting better in the third quarter? Do we have another contingent consideration headwind that we might be looking at? Or is there an issue with the business that we used to call Panther because there's just no emergency shipments going on? How do we turn the corner on these losses? Because I think all of us would argue these losses are bigger than we ever thought we'd see at the Asset-Light business.

Yes. So Jeff, it's Matt. Maybe I'll just walk through at a high level. I mean certainly, we've made some comments about the business, and we do feel like that we're positioned well there. But I'll just touch a little bit on your questions about contingent consideration because you're right. I mean that's something that we revalue under the accounting standards every quarter. We look at a simulation of the potential outcomes for that business as it relates to the earnout that we entered into that structured some additional value, some performance metrics were met when we purchased that business. And so as we've looked at that, you're right, on a year-over-year basis, there was a change as we look at that. And some of that just has to do with just getting closer to the potential earn-out period. You just got the time value impact coming into effect as that payout period is getting closer. But I would say when we're talking about the outlook that we're giving or the -- in terms of the expectations on being flat from the second quarter results to the third quarter results, we're not really considering that impact. That's kind of exclusive of that impact. That's not something that we're projecting forward to the third quarter. And then I think in that business, there's the dynamics that we have been talking about. I mean certainly, we've done a great job with the productivity and efficiency work that we've been doing. You've seen that in the results. I think we're taking the right steps now to make sure that we're prioritizing the profitable business on the truckload side and keeping the right relationships with customers. I mean if you look at all of the industry forecast, that business is going to turn. The shift has been maybe a little bit more delayed than others were anticipating. But I think from where we are with the customer service and customer satisfaction level, technology efficiency will be in a good spot. And you're right. I mean that is a mix of businesses that provide a lot of different services to our customers that they're appreciating. Certainly, part of that is our managed transportation business and part of the significant growth in the pipeline that we talked about earlier has to do with just the continued interest that we're seeing in that solution, and those wins are very significant wins when they come on board. I mean that business comes on in very large chunks, and we're having some very good late-stage discussions there. Expedite business is certainly part of that business as well, international, I mean, so there's multiple different solutions that come in there. And again, we are in a period, kind of bouncing along the bottom here, but we do know that, that business is going to turn and we're in a good position when it does.

Yes.

Jeff, this is Judy. I just -- I want to just speak to the strategic decision to own the asset-light solutions that we have. It's extremely important to our customers to be able to do business with a logistics company that has solutions like we do with truckload, ground expedite, the managed solution that Matt was just talking about. And so it is -- when I'm in customer conversations, we have the right conversations. And it's helped us to be able to execute through some of these market disruptions that we've seen. I mean it's really positioned us well to do that. We're in a market that's unusual, no spot market because of the carrier capacity that's here, but we are well positioned when the -- that changes and we have a better demand environment. And again, we have the right conversations with customers -- and when we do well with customers, that turns into shareholder value. And this is all a part of the story of our integrated solution set that we go to market with that I feel great about.

Judy. It's just -- I've had 10 other asset-light divisions report this quarter, and yours is by far the worst performing in terms of operating margin change. And I get that a lot of that's to contingent consideration. But historically, it's just done so much better than that. So I'm just trying to figure out what's weighing on this a little more [indiscernible] else's...

Yes. I know what you're saying -- I know what you're saying, Jeff, but when we look operationally, we put that contingent liability as a part of the overall purchase price for the company, which I think we would all agree, if we're able to pay something on that, that means the results are there. And that all -- that story will be told in 2025. And none of us can help the way that we have to account for it. But I wouldn't put those dollars in as operational because that's not the operation of the business. That's a part of the purchase price, just to clarify.

Can I just get one clarification. When you say operating loss should be flat, I think that's what I heard. Are you saying the dollar amount of operating loss? Are you saying the operating margin? Are you saying the revenues? When we say flat 3Q versus 2Q, what specifically is that we're talking about?

Yes. I mean I think...

Yes. We're talking about the non-GAAP operating loss that we had. We had a $2.5 million operating loss in the second quarter. We're hopeful to improve on that, but right now, particularly based on the trends that we're seeing in July, we're saying that we're expecting to be roughly at that same level as we move to the -- sorry, as we move to the third quarter.

Thanks, Jeff. Operator, it looks like we've got one more in the queue, so we can take one more question.

Perfect. Our final question for today comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Great. Thanks for the time. Maybe you're going to switch it up a little bit and follow up on the productivity initiatives. Is there a way to quantify how much of an OR lift we can get from those initiatives alone, irrespective of macro? And also, would you characterize these initiatives as kind of catching up to the rest of the industry? Or are you going to be pulling ahead with industry-leading initiatives here?

Yes. We provide our long-term OR guidance of the 10% to 15% margin, and that's really where we're leaning towards. And we've tried to get there consistently over the past few years. So if you look at, I believe it's Page 12 of the earnings presentation, that 840 basis point improvement we've had over the last few years. So I feel like we've made a step in the right direction on the OR, but we got more work to do, and that's why I'm so excited about Matt's leadership coming into the President role of ABF because he really spearheaded a lot of those efficiency improvements that we saw, the real estate plan we've talked about. So obviously, a lot of things depend on the macro. We need top line growth, and we've talked about that a lot of others have as well. But we feel like we still have a lot of runway on the efficiency side of things with the amount of projects we have in the hopper. So it's hard to give guidance on what that's going to translate to in terms of OR until we get through some of this pilot phase, but we feel good about our future and where we're going.

Got it. Maybe as a follow-up. I think, Judy, you opened the call by saying that your sales pipeline is up 40%. Is there anything we can read into kind of what that means for what the cycle looks like in the next kind of 6, 9, 12 months? Or is that just long-term statistic?

Well, it's a statistic that covers a span of time, but I wouldn't necessarily characterize it as longer term, although there are elements of it that the longer-term sales cycle like the managed part of it. But it's -- what's good about what we're seeing is that we're getting into later stages on those opportunities from where they were at the beginning of the year. So what I think when I see that is just about how we'll go into the latter part of the fourth quarter and maybe into 2025. And it's what I've always wanted our team to do, which is to outpace what's going on in the macro, particularly if it's negative and to really control our own destiny in terms of the growth that we have at the company. And so that's the way I think about it. It is not super long term or anything, though, I think we are replenishing it every day.

I will now turn the call back over to Amy for closing remarks.