Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the ArcBest First Quarter 2024 Earnings Conference Call. [Operator Instructions]. 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. Today, we'll provide an update on our business, walk through -- walk you through the details of our recent first quarter 2024 results and then answer some questions.

Joining me for the prepared remarks are Judy McReynolds, Chairman, President and CEO of ArcBest; Matt Beasley, Chief Financial Officer; and Seth Runser our President of ABF Freight.

In addition, Steven Leonard, Chief Commercial Officer and President of Asset Lot Logistics; Dennis Anderson, Chief Strategy Officer; and Christopher Atkins, Vice President, Yield Strategy and management are available to help answer questions.

To help you better understand ArcBest in our results, some forward-looking statements could be made during this call. Forward-looking statements, by their very nature, are subject to uncertainties and risks.

For a more complete discussion of factors that could affect ArcBest's future results, please refer to the forward-looking statements 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 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, there is a conference call slide deck that can be found on the ArcBest website, arcb.com and exhibit 99.3 of the 8-K that was filed earlier this morning. Before I turn the call over to Judy, I want to let you all know that I will be retiring from ArcBest at the end of August.

So the second quarter earnings conference call will be the last one I do. It's been a privilege being a part of this wonderful company for my entire career. I came here right out of college in 1983, and it was the best career decision I could have made.

It's been an honor to have been part of the success story of growing from a $468 million LTL company into a multibillion-dollar integrated logistics company. But as the proud grandfather of 7, I'm looking forward to speaking -- to spending more time with my family.

I look forward to watching and cheering for ArcBest as it continues to prosper in its second century of business. With that, I will now turn it over to Judy. .

Good morning, everyone. I'd like to begin by expressing my heart felt gratitude to David for his enormous contributions to ArcBest. As he prepares for a well-deserved retirement, we celebrate his remarkable tenure of nearly 41 years with us, 26 of which he spent leading our Investor Relations team.

Throughout my time as CEO and even before that, I've had the privilege of working closely with David. He has been an outstanding colleague and friend, and his dedication and leadership have been instrumental to our success I am excited to welcome Amy mendenhall as our new Head of Investor Relations.

Amy has been with ArcBest for 26 years until recently served as Vice President, Controller for asset-light operations. Earlier this year, Amy assumed the role of Treasurer and she has been working closely with David to ensure a seamless transition as she adds Investor Relations responsibilities.

We believe the core of ArcBest success is our people, and our people rose to the occasion this quarter as we navigated continued market softness and weather events. Despite these challenges, we delivered solid first quarter results, including generating $1 billion in revenue and nearly $43 million in non-GAAP operating income.

Our focus remains on efficiently running our business, delivering a high-quality service that our customers value and effectively managing costs.

Here are some key highlights from the first quarter that show our continued focus on our 3-point strategy of accelerating growth, increasing efficiency and driving innovation, all while delivering a high-quality service that our customers value and effectively managing costs.

Demand for our services remains strong with a solid pipeline that has grown by 35% since the start of the year as our best continues to act as a trusted adviser to customers, helping them solve their logistics challenges. We have seen positive trends in our core asset-based business with daily shipments and tonnage, both increasing over last year.

Our asset-light shipment volume has grown significantly with double-digit growth in the managed transportation solutions. This is a testament to our commitment to helping our customers optimize their supply chains.

A large and long-time customer recently told us how much they value our hands-on approach to creating logistics strategies that enhance flexibility in their network, increasing efficiencies and reducing costs.

Despite severe weather conditions in January, we achieved the highest on-time performance and network efficiency since 2021, a testament to our laser focus on operational excellence. We continue to make strategic investments to accelerate growth and increase operational efficiency.

For instance, the opening of a new facility in Olathe, Kansas, allowed us to relocate city operations from the Kansas City distribution center, leading to a significant increase in productivity across the facilities.

We anticipate similar productivity gains with the upcoming Lithia Springs Georgia facility set to open in June, which will enable us to relocate our Atlanta area city operations from our Atlanta area distribution center. And we remain committed to innovation.

In March, we announced the next step in our Box Suite FOX smart autonomy, which includes forklifts and reach trucks that leverage automation and teleoperations, when needed. This transformational solution empowers customers to unlock supply chain efficiencies across their facilities.

Before I pass the call to Matt, I'd like to address the noncash impairment charge related to our best equity investment in Fantom Auto, which resulted in a $22 million reduction in net income.

For context, in January of 2022, ArcBest announced a $25 million investment in Fantom Auto as a part of a transformative initiative centered around remote-operated autonomous forklifts developed for use in ArcBest customer locations.

Since our March launch of the Box Smart Autonomy solution, we've seen significant customer interest, and we currently have pilots underway with key customers. These pilots are leveraging our own technology solutions for any required teleoperations, instead of the Phantom Auto solution we previously used.

Box is just one example of our proud legacy of developing creative solutions and investing in strategic and transformative initiatives. We remain encouraged by our progress and are committed to staying involved in leading-edge innovations to help our customers solve real supply chain challenges.

And with that, I'll turn it over to Matt to take you through the results in more detail. .

Thank you, Judy, and good morning, everyone. Despite the market backdrop, I'm pleased to report that ArcBest delivered solid financial performance for first quarter 2024. Let me start with an overview of our consolidated results. During the first quarter, we generated $1 billion in revenue, down 6% versus last year.

Our non-GAAP operating income from continuing operations was $43 million compared to $52 million last year. Adjusted earnings per share was $1.34, a decrease from $1.58 in the first quarter of 2023.

Despite a 3% decrease in revenue per day and additional costs related to a new labor contract, our asset-based business achieved the same level of non-GAAP operating income as the first quarter of last year.

The $9 million decrease in consolidated non-GAAP operating income was primarily driven by our asset-light business, we saw impacts from January's weather in a softer truckload market. Now, let's talk about the 2 segments in more detail. Starting with the Asset-Light segment.

First quarter revenue was $396 million, a daily decrease of approximately 9% year-over-year. While shipments per day increased 14%, revenue per shipment decreased 20% due to the softer market and growth in our managed business, which has a lower revenue per shipment.

The non-GAAP operating loss of $4.7 million for the quarter was largely due to weather in January, which increased purchase transportation costs. However, I'm pleased with the improvements we saw throughout the quarter, with a small loss in February and a slight profit in March on a non-GAAP basis.

We have maintained our focus on reducing operating expenses and improved employee productivity over 27% on a year-over-year basis.

Looking at preliminary results for April that were filed in the 8-K this morning, shipments per day are trending higher by 10%, while revenue per shipment is down 18% and revenue per day is down 7% compared to April of last year.

While the April numbers are somewhat lower than March, I'm encouraged by the improvement in purchase transportation costs, which helps margins and overall operating results. With our improvements in operating costs and productivity, we are well positioned for the eventual recovery of the truckload brokerage market.

Moving on to our asset-based business. First quarter revenue was $672 million, a per day decrease of 3%. The segment's non-GAAP operating ratio was 92.0%, an improvement of 30 basis points versus the first quarter of last year and 430 basis points above the fourth quarter of 2023.

The sequential performance was generally in line with the past performance we have seen in softer freight environments.

As we move from a strong fourth quarter into our first quarter with more muted demand and higher union benefit and profit sharing costs, we optimize our freight mix, maintain pricing discipline, manage costs lower and improve productivity, which all contributed to our results for the quarter.

First quarter tonnage per day decreased by 17% and daily shipments were 6% below prior year levels, primarily due to lower transactional volumes and lower tonnage levels more broadly for the industry. However, our core LTL shipments and tonnage continued to grow, contributing to improved productivity and better financial results.

Our year-over-year billed revenue per hundred rate increased over 15% in the first quarter, which was driven by higher prices in our transactional business and a mix shift towards our growing core business at a higher revenue per hundredweight.

We secured an average increase of 5.3% on our customer contract renewals and deferred pricing agreements during the quarter demonstrated continued pricing discipline.

Preliminary asset-based results for April show lower year-over-year tonnage in shipment levels and higher prices as we continue to manage our mix of business with more core and less transactional shipments, leading to a better productivity and profit outcome.

The average sequential change in the asset-based operating ratio from the first quarter to the second quarter over the last 4 years has been an improvement of approximately 200 to 300 basis points. We are proud of our first 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. Seth will now discuss how ABF continues to advance its proud tradition of excellence. .

Thanks, Matt. Our focus remains on the factors within our control that contribute to operational excellence, our people, productivity and capacity. Let's start with our people. We pride ourselves on our strong culture.

Over the years, we have successfully navigated various freight environments in the spirit of determination, adaptability and excellence continues to thrive among our employees. We invest in our employees, ensuring they are well trained and fully understand our strategy.

This empowers them to perform at their best, and we're proud to have been repeatedly recognized on Training Magazine's Apex Awards list for our commitment to our employee training and development.

This year marks the 40th anniversary of our quality process, a 5-step problem elimination process that empowers our frontline employees to identify and resolve problems, enhancing our productivity and service.

We have a dedicated team of operations experts working closely with our frontline teams in key locations to refine processes and improve operational execution. These efforts have led to double-digit productivity gains at these key locations, expanding capacity and improving operating results.

We plan to extend this initiative to more locations throughout the year. Our investments in technology is fueling productivity and yielding tangible benefits. We are developing tools that enhance network visibility and empower our frontline teams to make real-time, data-driven decisions. Here are a few examples of the tools we've recently deployed.

City optimization, which leverages AI and machine learning to drive efficiencies continues to save us around $1 million each month. We are currently piloting the next 2 phases of this project at multiple locations. Our new dock software enhances visibility into dock activity.

Early results from locations where the software has been installed are promising. We developed in-house labor planning applications for our distribution centers and tools that predict hiring needs based on forecasted demand. These are being rolled out in additional locations.

These new tools have enhanced freight visibility and resource management across our network, and we expect them to continue delivering benefits for the years to come.

Regarding our network and our facility road map, we operate a mature nationwide network and have a robust process in place to identify where we need to increase capacity to meet customer demand. Since the end of 2021, we've added roughly 500 doors, and we plan to add around 280 doors the rest of this year, including the 4 yellow facilities.

Our technology tools and network design strategies are amplifying our capacity. As Judy said, in March, we opened our new facility in Olathe, Kansas, which has already led to a double-digit improvement in productivity at the nearby distribution center. This additional capacity will support future growth.

We continue to invest in our fleet, which is one of the newest on the road. This has reduced repairs and lowered operating expenses and positioned us to respond with the reliable capacity our customers expect as market conditions improve.

We have a robust pipeline of optimization projects on our road map, all aimed at delivering customer value and positioning us for growth, both in the short term and long term.

In closing, I would like to congratulate our team on some recent external recognitions including the LTL Carrier of the Year award from several companies like Coyote, TQL, American Group and in Express. We were also honored to receive the ATA's Prestigious Excellence in Security Award last week. A sincere thank you to our people for all you do.

I will now turn it back to Judy for some closing remarks. .

Thank you, Seth. At ArcBest, we help keep the global supply chain moving. Our commitment to investing in our people, our solutions and our technology is unwavering, and it is this commitment that fuels our growth. Our customers appreciate the depth of knowledge and experience we bring to the table, helping them navigate their most complex challenges.

It's so rewarding when I hear feedback from our customers on the challenges we've helped them solve. We are honored to receive external recognition, especially when it highlights performance in key areas. So I was pleased for ArcBest to be recognized by Newsweek and Statista as one of America's most responsible companies in 2024.

ArcBest has a long history of good stewardship and taking intelligent risks on our path to growth. That concludes our prepared remarks, and now I'll turn it over to David Humphrey. Thank you. .

Okay. Denis, I think we're ready for some questions. .

[Operator Instructions]. Your first question is from the line of Ravi Shanker with Morgan Stanley. .

David, our best second century will be better than its first, but it won't be the same without you. Thank you for all the help over the years. .

Thank you. .

Judy, maybe absolutely, maybe at a high level, how do you guys think of the balance between price and volumes, especially as we enter an up cycle here? And kind of how do you think about a modeling perspective, operating leverage versus pricing dropping through to the bottom line?.

Yes. I'll let Christopher answer that question. He's our Head of Yield strategy. .

Sure. So really, this is a balancing act between price and volume. We really want both. Obviously, we want growth. We want that top line growth, and we need to be -- make sure that we're compensated in the right way to produce good financial results. So we have a robust activity-based costing system that informs our pricing model.

That's something we've invested in for many decades now that's proprietary to us, something that we own personally and that we maintain just over the time. And that's something that we rely heavily on for pricing to make sure at an individual shipment level and at a customer level to make sure that the business is operating profitably for us.

So in terms of existing business, we're making sure that we're securing the increases that we need for that business to be sustainable for us and for new business, we're able to leverage that costing model to make sure that just reviewing the prospective expenses that, that business would bring on, that is going to operate at the levels that we need to grow.

So really, it's a bounce act of both, like you said, but we need growth and we need to get the right pricing results for that growth. .

But as those volumes come back, will you see higher incremental margins than you have in previous transitions from down cycle, stop cycles?.

Yes. I mean, Ravi, I would say, across both businesses, we believe that we've got a lot of operating leverage.

I mean, certainly, a lot of that's created on the ABF side, but all the efficiency and productivity initiatives that Seth has been talking about, and we remain focused on being able to profitably serve the growth that Christopher is talking about. And I would say the same on the asset light side.

I mean a lot of these as the market turns, you're going to see the vast majority of that revenue increase dropped to the bottom. .

Your next question is from the line of Jason Seidl with TD Cowen. .

Thank you, operator. David Geez, it's been almost 3 decades of you helping me. It's definitely not going to feel the same without you, but well-earned retirement, and I guess some of us might think you're doing this just to get the truck finally. .

Yes, they won't give me one either, Jason. .

Well, come on, you got 7 grandkids. They might want them. A few things here on the tonnage side to help us better understand what's going on behind the numbers.

Could you remind us when we sort of lap that transactional freight disposals? And if we would back that out on the tonnage side, what would that look like? And how would that compare to seasonality?.

Yes. Sure. So Jason, it's Christopher. So really, the tons that you saw a pretty significant change as it relates to the second half of last year. So I think you're going to see these more dramatic changes that you're seeing in the first quarter. This quarter and in second quarter, I think you're going to see those trends persist.

And then as we get into the third quarter, I think you'll see more consistent results there in terms of tonnage and shipment changes from a moving forward basis. .

And then how would that compare if you back it out right now to seasonality?.

Comparing for the first quarter?.

Yes. .

So I think first quarter is from fourth to first operated similar to seasonality from our core business. .

Our next question is from the line of Jordan Alliger with Goldman Sachs. .

And David, congrats on your upcoming retirement. We go back a pretty long way. So it's great, great you're getting there. .

[Indiscernible]. .

So I guess my question is maybe a follow-up thinking about weight per shipment.

If maybe we start to normalize a little bit on this transactional versus core in the back half, I mean, can we also expect weight per shipment to start to look a little bit more even keeled and then perhaps more indicative of how well the economy is doing? I know historically, that's been a key metric to take a look at.

And is there a way to get a sense for what proportion of your LTL business is core versus transactional overall?.

Yes. Thanks, Jordan. So this is Matt. So I would say as we think about weight per shipment, that certainly could turn into a tailwind as we move throughout the year. I'd say really from 2 different aspects that could be created from one just as the truckload market continues to improve.

There has been some movement from LTL into truckload -- and so that -- as that comes back in, that will be a tailwind. And then with an improving manufacturing economy as well, which we've seen some initial signs of in the last month, we think that could be an additional tailwind.

And we've continued to see additional strengthening in our core business. I would say we expect to see that as we move through the quarter into May and June, just looking both at the seasonal trends and then just the opportunity set that we have in front of us. .

Your next question is from the line of Ken Hoexter with Bank of America. .

And Dave, obviously, great working with you over these 26 years and good luck into retirement. It's been a joy working with you, Judy, it's truly a great teammate. I guess my question... .

Thank you. .

You got it Dave. Definitely well deserved. The April data seems like it's accelerating to the downside on tons per day and yet maybe even an easier comp, if I look at last year, April versus March and yet we're decelerating on tons per day decelerating on shipments per day.

Maybe talk a little bit about the economic backdrop here and kind of what we're seeing in terms of the core. .

Yes. So Ken, it's Matt again. I say for April, we did see a little bit of a deceleration versus March.

But again, we've done some deep dives into our customers really on a customer-by-customer basis, just looking at what the expectations are over the next couple of months, what their trends have been in the past and particularly some new customers that have been brought on and we've added to our core mix there.

And so I would say, as we look forward in the quarter into May and into June, we do expect to see some significant increase on that front on the core business side as well as, I would say, just continued acceleration on our operational efficiency metrics.

I mean if we look at our load efficiency metrics, our other productivity metrics, those continue to improve in April, and we expect those to continue to improve as we move through the quarter. .

I guess I'm a little confused by the strengthening in core business commentary, but you deteriorate.

I just want to understand the backdrop, is the economy getting up? Or is it just a transaction versus a mix issue?.

I guess, that it continues to be -- the core business continues to be in a very strong place, and particularly if you're looking at year-over-year comparisons.

I guess what I was saying is if you're looking more on an absolute basis, there was a little bit of a decrease at least numbers that we were seeing as we moved through the first part of April, but we expect that to turn around and move into an increasing level of core business as we continue to move through the quarter.

So it really depends on your comparison point. .

Got it. And then my just follow-up is... Go ahead, sorry. .

Well, Ken, I was just going to add a couple of things. I mean, I think when you look -- I mean, the presentation that we put out there illustrates this. But I mean, I feel like we've had relative consistency on the core shipment growth, which is helpful.

I think one of the things that Matt really thinking about or referencing is just the pipeline of opportunities that we have with our customers.

We've got a lot of visibility into that, and we have some good LTL opportunities, but also in the truckload and the managed area, we've got some good solid opportunities that our sales team has done a good job with.

Also something that we haven't said in this Q&A portion, but I think it's really important takeaway is that when we're doing business with our regular customers, that is more predictable and it allows better planning, labor planning, and it also enhances our ability to be productive, which leads itself to better services being given or service, excuse me, being given to our customers.

And I think that, that's really an important takeaway here. And one that we focused on really since about the third quarter of last year. So -- and I think Seth said many things in his prepared comments about different efficiency gains that we're looking forward to as we move ahead.

And many of those will just further enhance the strategy that we've been deploying. .

David is going to cut me off. I know he's going to get upset, so I'll sneak a quick one in. A lot of innovative tech investments that keep going on. Judy, I just want to understand why is that not part of your annual regular tech spending and CapEx, OpEx, they're ongoing. They're consistent and then you take a big write-off like the investment.

But if their consistent spends and hope for improvement long term, why is it not kind of part of your regular cost. .

Well, one main reason is because the customers that we are working with are in pilot stage. We -- there's a lot of different use cases that we're working through.

And because of how long the sales cycle is and that is in a process that we go through with each one, there really isn't any regularity to it in terms of either the revenue stream or the cost necessarily that are being deployed for those.

And so we look forward to having that be the case, and we'll move those costs and as well as the revenue that goes with them into regular operations when we do. But that's the difference or the distinction that we're drawing there is because of the -- just the pilot nature.

And we've got 10-plus active pilots and even more than that under kind of contract review and scoping. And so it's an exciting -- and you've seen some of the, I think, the press on it. Box Smart Autonomy as well as the freight movement system, those are exciting innovations that have real Fortune 50 and Fortune 500 companies that we're working with.

But we're not to a point of it being regular yet and operational, so to speak, and that's when we'll shift it over into our regular earnings. .

Your next question is from the line of Daniel Imbro with Stephens. .

Yes. David, congrats on the retirement [indiscernible]. Maybe starting on the EPS side... .

Thanks Imbro. .

You mentioned in the release and the comments sequential move in to the last few years, 200 to 300 million points. I think that includes COVID though some pretty weird, great years. I think pre-COVID it was closer to 500 basis points.

I guess what are the puts and takes as you guys think about the sequential OR movement here between this year and maybe that pre-COVID normal time if we use that as a beta. .

Yes, Daniel, it's Matt. Good question. I think you'd have to think a little bit about the historical context. And so I think if you go back and look at some of those historical periods where you saw the higher move from the first quarter into the second quarter, it was certainly off a higher operating ratio level.

And so being at -- but if you look over the last 3 or 4 years, I would say that that's an operating ratio that's more in the context of the operating ratio that we saw in the first quarter of this year. And so that's why we provided that more recent historical context. .

Okay. That's helpful. And then on the asset line side, just to follow up on that one. Obviously, a challenge is bouncing on the bottom of the cycle, but I think you mentioned that I actually had a slight non-GAAP profit in March.

Just curious how we think about the profit outlook on that side? Is there more you can do from a cost standpoint or operational standpoint to improve that profitability before the cycle starts?.

Daniel, this is Steven. That's an area where we continue to make improvements. If you look at first quarter, we saw a significant improvement in productivity on a shipments per employee per day basis. And we have technology road map items, other process items. So we'll continue to look to make improvement there.

That's -- it has to be a top priority for us, along with the opportunity to grow. And obviously, growth in that segment is the top priority that fixes a lot of things, but we also have some opportunity to continue to improve productivity. .

Any way to help size up what the opportunity to let is or even the [indiscernible]. .

I'm sorry, can you repeat... .

Yes. Repeat it. .

Just any way it helps is on maybe what's left on the self-help or kind of the opportunity to make that business more optimized before the cycle turns, either cost take out or kind of what you see from a profitability standpoint that you can control before the cycle improves?.

Yes. I mean I don't have a specific number to provide. I would think of it more as incremental improvement. If you look at what we did in the first quarter, we had a 27% improvement in productivity when you measure it by shipments per employee per day. So we've made good strides there.

It's a continued area of focus, and we'll look to continue to improve, but I will think of it as more incremental improvement. .

Your next question is from the line of Brian Ossenbeck with JPMorgan. .

David has been great to work with you even over a shorter period of time than most folks. But I really appreciate it and good luck in everything. .

[Indiscernible]. .

Just wanted to start off with a quick clarification, maybe for Matt, like the 200 to 300 basis points you're talking about here, is that the actual guide? Or is that just the benchmark and we'll kind of see where it goes.

Like maybe you can give a little more context in terms of like how we should look at that and then also maybe about the third quarter as well as we're trying to figure out what sort of normal seasonality and put some of these benchmarks to start off here. .

Yes. So I mean, I would say that's more of just some historical context. And like I said, it's probably historical context. It's a little bit more relevant than maybe the historical changes that we saw 5 or more years ago. And so I wouldn't look at it as a specific guide.

But like I said, we've done a deep dive into our revenue mix and our customer trends. And so we feel good about the acceleration that we expect to see as we move through the quarter. We also, like Seth talked about, continue to advance some significant operational efficiency and productivity efforts on the ABF side.

Some of those, like the Kansas City, the opening of the new facility in the Kansas City area, which we've seen some significant improvement in productivity on that happened towards the end of the quarter. So we expect to see a full quarter benefit there. I mean as you look forward as we move through the year.

I mean you've got to think a little bit about just some of the events that have transpired, particularly over the last year with the yellow related impact as you move from the second quarter to the third quarter.

I think we still expect acceleration on both of those areas that I talked about, both on the core business level and on the efficiency and productivity level. And as we get closer to the third quarter, we'll provide some more details just on the historical context and what we're seeing. .

Okay.

But it sounds like a similar historical context might be a good enough starting point for the third quarter? Or is it going to get a little different because you have all these moving pieces on the core business and the transactional starting to lap out the comp at that point?.

I mean I guess I'd just say that the third quarter of last year was just a little bit of an outlier just given everything that was going on in the market then. And so we saw about a 400 basis point improvement from the second quarter to the third quarter of last year.

Now we've had the benefit of the capacity coming out of the market and as well continued progress on the operational efficiency side. But a lot of those measures went into effect as we were moving through the third quarter of last year. We saw the impacts there. .

Okay. One just real quick follow-up. If you can help me think about capacity additions. I know you got the 4 coming on from yellow, but at least the headline tonnage numbers coming down so much in ABF.

Does it still make sense to bring on that level of capacity? Is there going to be a bit of -- not hiccup, but at least maybe some sort of a gap as you have to wait and to fill this up, like maybe you can walk through that and how the current market fits with the capacity ramp-up plan for the rest of this year. .

Yes, Brian, this is Seth. We really are trying to position ourselves for that longer-term growth that we've talked about in our past. As I mentioned in my prepared remarks, we have a mature nationwide network, and we continue to evaluate where we see growth opportunities or efficiency improvements with our real estate plan.

So we've added the doors, and we talked about a late example already how we saw really great results. I mean double-digit productivity gains. We'll do that same type of exercise in what the Springs facility opens on June 4. So those are just some examples of what we're doing.

We really evaluate our real estate portfolio, looking at where we see the greatest demand opportunities because our pipeline is strong, like we talked about in our opening comments. So we feel like we'll be in good position with our investments there. The 4 coming on from the yellow facilities.

Those are really going to be facility moves from where we're currently at, where we don't have enough capacity. So I view that's going to be another improvement in productivity and also position us for future growth. So... .

I mean, yes. What I like about our plan there is just the purposeful nature of it. And there's more than one benefit to what we're doing. It's growth oriented, but it's also efficiency gains and better serving pot. .

Your next question is from the line of Ben Mohr Mok with Deutsche Bank. .

Dave, congratulations on your retirement. I wanted just to look a little deeper into the runway for your service improvement related to your yield gains. The decrease in your total daily shipments and tonnage in 1Q due to your price increases in your transactional LTL business need your growth in your core business.

Is that a direct result of your service improvement from your recent 18-month quality and training initiative and productivity initiatives? And if so, as you continue to improve your service into 2Q into 4Q, can we expect more price increases in transactional LTL business and more growth in core business leading to more of an acceleration in revenue per hundred weight growth and tonnage and shipments declined at better margins.

I'm trying to get a sense of sort of May and June trends for yield tonnage and shipments and also for the rest of 3Q and 4Q and how the runway of your service improvements could drive that. .

This is Christopher. So I'll comment from a yield perspective. I think Seth will have some commentary from the service side.

So really, the year-over-year change that you're seeing is like we talked about, just a mix change, less about some abnormal pricing action that we would be taking on our core business and more about as our core business is growing, we're making room for that business by raising prices on our transactional.

And when I say on the transactional business, that business really best from customers that are interacting with us digitally via our website or their TMS platform. So they're really executing at a shipment level and really we're offering market-based prices in areas where it makes sense and fills excess capacity in our network.

So we managing that day to day and really at a shipment level decision. And our core business is more regular ongoing business. As Judy mentioned earlier, it tends to be more productive for us as we have better freight density on pickups and deliveries.

So on a move-forward basis on May, June, probably more similar to April in terms of what we're seeing from a revenue per hundred weight. And then as you get into July and beyond, you're going to see those year-over-year comps come back down to more normal levels based on historical levels. And Seth may have some comments on the service side. .

Yes. I would say that we were able to respond to our customer needs in any environment as an integrated logistics company. So like Christopher stated, as we improve our service, we think that core book of business is going to continue to improve, and we saw that in the fourth quarter as well as the first.

And we've really always had a commitment to excellence. We've invested in service quality, that team experts I mentioned in my prepared remarks, not only are they improving efficiency, but also everywhere they go, we see service improvements as well. Judy mentioned the consistent business volumes allow us to plan for labor better.

So with that consistency and better labor planning, we're also able to stay on cycle, which improves service to our customers.

And it's nice to get some of these external recognitions carrier the year at multiple different companies have awarded that and then being the only 10-time winner of the ATA Excellence in Security Award just a lot of improvement.

So we think as we improve our value to our customers, we'll continue to see that growth, and that's really what we're known for in the market. .

Great. Appreciate that. And maybe just as a follow-up, if I can go back to the OR guide question that sequential into 2Q improvement of 200 to 300 basis points, which is based on the last 4 years average, that includes a very difficult 2Q '23 that saw 50 bps of expansion. The pre-COVID average is as high as 500 bps of improvement.

Is your guide still based on a very challenged freight environment? And can you discuss the possibility of maybe a better 400 bps of improvement, let's say, if there's more volume inflection or maybe worse, flat or only 100 bps of improvement if the freight demand softens. .

Yes, so maybe I would just highlight there, again, we're just providing some recent historical context. But I think if you go back and look, if you're talking 5 to 10 years ago, the absolute level of operating ratio that we were achieving on the EBS side in the first quarter was higher than the levels that we've achieved in the last few years.

And so that impacted the sequential moves that you might have seen historically and is why we felt like that the more recent history was better to provide in terms of historical context. .

Our next question is from the line of Tom Wadewitz with UBS. .

And David, I also want to add my congratulations to you. You've been doing a great job for a long time and wish you the best in retirement. .

Thanks a lot, Tom. .

Let's see. In terms of the -- I guess 2 questions, maybe I can just start with a question on the sequential. I know you were talking about it a bit. If we think of absolute tons per day in May and June, I think seasonality would imply you should see some improvement.

And then also, I think revenue per shipment, we would expect kind of normal seasonality to see some improvement versus what you've seen in April.

Is that right? Because I think maybe your comments were on year-over-year when you were talking about May and June before, but just trying to figure that out in terms of like what those absolute numbers might look like in terms of normal seasonality? Or are they just flat in terms of absolute versus April?.

Tom, this is Christopher. I think you're right. From an absolute basis, we would expect historically speaking, versus second quarter, there would be an uptick in demand from a both tonnage perspective and a revenue per day perspective as customers are shipping more as their business picks up. We did not see that.

I think we've discussed that a few times last year just due to just being in a freight recession that we've been talking about ongoing for the last many months. So our expectation is that, that we would see a sequential seasonal uptick from first to second, as you're describing, that would be different from last year. .

Okay.

And so you would see that seasonal uptick May and June versus April?.

Typically speaking, yes. .

Okay.

And you're thinking you expect that to be the case this year as well?.

Yes. I mean, historically speaking, that's true, just talking to our customers, there's kind of a mixed bag. Customers are saying demand is still soft for them. You do have pockets of customers that have a stronger demand than others. But again, just going back to historically speaking, that has been true. .

Yes. Okay.

And then, Judy, what do you think happens on the pricing environment and competitive discipline? It seems like maybe it's tough to ask for as much on rate increases? Or you would think maybe the pricing environment is stable, but with less normal seasonality and with the yellow capacity coming in across other players, maybe with some discipline or maybe kind of coming in gradually.

But do you think -- just how do you think that pricing and competitive environment develops?.

Well, it's interesting from where we sit because of how we go to market as a logistics company because what we are positioned to be able to do is to say yes to customers. And what that really does for us is it puts us in a position where if the customer is more value-based and service-oriented, we perhaps have one answer.

It could be a good opportunity to flow through the ABF network or if it's a customer that has more price sensitivity and different challenges in their own business.

I mean that's a customer that we potentially could do well with in our managed solution or in our LTL brokerage solution where we access capacity with other LTL providers that perhaps have a different price point than we would at ABF.

And so we're really positioned well to benefit and navigate our way through any of these situations or challenges, which that's what we've been positioning for a decade here. And it really does make sense. I mean right now, what customers would tell you is that their priorities are supply chain reliability and cost efficiency.

And so as we are interacting with them, we're trying to determine the best solution for them and to fulfill that through the options and the opportunities we have, whether it's our own assets or third-party assets.

So I think to answer your question more specifically, on the pricing, that is involved in the value discussion or the priorities discussion for that customer.

So it can be a variety of answers, but one that we can capture and do well with if the customer is going to be a customer of regularity or value-based or that we can get a sense for how we can do well to fulfill their needs operationally. .

I think -- I mean you're characterizing customer behavior? What about competitor behavior?.

Well, I mean, again, competitor behavior, if it's a customer that we're doing our managed solution with, for instance, the competitor behavior would be embedded in the answer that we get when we place the LTL shipment in their network.

So we stand to be in a position to really serve customers well, depending on what their needs are and which places they land in our organization. But what I'll say about our pricing and our philosophy related to what we run typically through the ABF network is we're very price disciplined. We're very value-based.

We offer a high level of service, and it's a part of what works well in that network, and we stay consistent with that, and we have for decades. But we are, I think, understanding more about what the market is providing or giving us as we work through these different answers with managed and LTL brokerage as well. .

Okay. Your next question is from the line of Stephanie Moore with Jefferies. .

I guess, just to echo what everyone else is saying. David, congratulations. I know we will all miss you. So -- but congratulations, very well deserved. .

Thanks a lot, Stephanie. .

Maybe going back to a prior question on disservice here. I wanted to -- I appreciate kind of citing the on-time performance and some of the other metrics that you provided in the deck and noted today. I think if we look at what many of us view from a third-party service provider, I think it showed some movement in 2023.

Clearly, 2023 was an abnormal year for the LTL environment in general.

So maybe if you could just comment a little bit on what you think drove some of that movement, maybe a little bit lower than you had been in the past and areas that you might address what might be measured in that survey when clearly, there are some good pauses on the other side of it, too. So maybe just any additional color there would be helpful. .

Stephanie, it's Dennis. Certainly, I understand the movement that you're talking about kind of in the third-party a few things. And last year certainly was not the result that we would have hoped for externally from that perspective. But when we look at what's going on to improve the service levels.

I mean, Seth has talked about this morning, just the investment that's going into the network, the work that's going on from a service quality and compliance perspective, it's a significant gain that we see there in that asset-based network in terms of service, especially since those survey results from last year.

And so if we're working on those optimization projects we talked about in that asset-based network, certainly, customer communication enhancements. I mean, we rolled out at the beginning of this year, more visibility for our customers online, so them being able to see free pickup for instance, what's going on with their shipments.

So the visibility is one of those things. So we take that customer feedback and we turn that into what we needed to go improve. And so we've been working on the things that we've been hearing from customers to improve that service.

And so we're confident in what we're seeing in some of these awards and then just the on-time performance that you mentioned. And certainly, there's a slide in our dec from today that just talks about some of that feedback that we've received some of the initiatives we've been working on to improve that service as well. .

Got it. No, that's helpful. And then maybe just as a follow-up. I think we're obviously very much focused on in the near term and what's been a worse freight environment than we've expected here. But I'd love to get your thoughts in terms of how you're positioned when this freight cycle eventually turns.

You've talked a lot about capacity investments and expansion there, which I think positions you very well.

So maybe from the labor equipment, some of these other aspects that you feel like your -- how you're positioned today in terms of the ability to react once freight starts to move in our direction a little bit?.

Yes. Stephanie, this is Seth. I feel like from a labor standpoint, we're positioned really well. We're able to flex our labor up and down with some of those tools we invested in, and we have good visibility in what we even need 6 months from now based off the demand with those predictive analytics tools that we've invested in.

So I feel good from a labor standpoint with the new contract, our starting wage is in a better spot, more market competitive, and we just see a lower turnover rate with our employees. As I look at just industry stats, we have some of the leading industry stats on turnover. So we have experienced people who know our customers' freight.

So feel good from a labor standpoint. Our equipment, we've continued to invest in the fleet. In my opening comments, I said we had one of the newest fleets on the road. We have more equipment coming on. That's starting to be delivered as we speak. So we feel like we're pretty good there.

We can hold on to some of the older stuff if we see demand come on or we can optimize and get rid of those high-cost units, and we've been doing a good balance as we move through this year. And then really from real estate, we've been executing on that long-term plan since 2021.

We've added capacity in strategic markets where we see growth or productivity improvements. And we're also seeing service improvements in the OTA example. So I feel like we're positioned well across the board. And really, when I think about capacity of all the things I just mentioned, it also comes down to efficiency.

And you saw in our actual presentation, we're seeing some of the best efficiency numbers in 3 years because of our investments. So we feel pretty good, the more efficient you are, the more capacity you have for growth. So... .

Your next question is from the line of Jeff Kauffman with Vertical Research Partners. .

David, wishing you all the best in retirement. I may have to sneak down there and make sure Amy understands Calico County would be... .

We can do that. .

Well, you are one of the best. I will miss working with you. So congratulations. .

Thanks Jeff. .

I'd like to turn to the expense side, and I'd like to focus a little bit on labor costs. On a year-on-year basis, it was only up 3%. But if I look at it as a percent of revenue, it's up almost 400 basis points. If I look at it on a per pound basis, it's up almost 25%. I know some of that's tonnage being down the way it is.

Can you help us understand the labor cost increase, how much of that was increase in cost per person versus maybe employment change and productivity? And then as we turn the page on the first year of the new contract, how does that labor cost inflation in year 1 compared to year 2?.

Yes, I'll answer that question, Jeff. This is Seth. So when you look at our contract in year 1, we had about a 13% increase in wages on year 1 and then 7% increase in HWP cost. As we lap that and get into July, our wages will go up about 2.5% and and then HWP will be in August at about 2.9%.

So we get to a lot more normalized rates, not just for the second year, but also every year moving forward, we had to get over that first year headwind. So we did a lot of productivity things like reducing some of our external resources like Cartage, PT, rail, rentals, things like that.

So the cost increase that we dealt with in the first quarter was about $29 million from the contract, and we were able to pretty much wipe that out with the efficiency improvements that we saw. So we're going to continue to do that. What you saw in the third quarter, fourth quarter and now first, you'll see that continue throughout the year.

And we have a lot of optimization projects in our pipeline. So we feel like just a lot of things in pilot right now, like city route optimization, in the next 2 phases and then rolling out the different doc software and labor tools. We feel like we're going to continue to optimize our cost structure while being positioned for future growth. .

So to take 10 steps back if your renewal rate on contracts is about 5%, 5.5%. And I'm not trying to balance this transactional versus contract mix issue here.

And your labor costs go from consuming 600 basis points of revenue to 100 basis points of revenue, we should see a pretty meaningful margin flow-through to the LTL business would be the idea, correct?.

Yes. .

I say those are the same trends... .

I'm not a math genius, but I'm just trying to put some numbers Wonderful. -- congratulations. I know there's a lot of moving parts, so it's kind of tough to see what's going on here. But the LTL results look great. And David, I wish you well. .

Thanks a lot, Jeff. We've got a couple more. We may go over a few minutes, but we'll try to get a couple more in real quick. .

Your next question is from the line of Bruce Chan with Stifel. .

This is Andrew on for Bruce. We also want to echo the comments to you, Dave. Congratulations. So I just wanted to kind of --.

Thank you. .

-- we are -- yes, no problem. So we're in an environment here where the #3 player has exited. In our opinion, manufacturing is at least stable and recovering and consumer demand seems to be still okay.

So we're kind of wondering what the disconnect with the continued decline in volume over what should be an easier comp from last year in 1Q and especially in 2Q. What levers do you guys have to be able to drive some volume into the network. .

Well, I'll take a shot at that. But I mean I feel like that the move on the manufacturing PMI, which is an indicator for us, was modest after 16 months of decline. And what we've seen over time is that when that moves, it's typically 4 to 6 months before we see the impact of it. So that's one piece of information.

And then the other that I would consider is just the state of excess capacity on the full load side. I mean I think that, that's had an impact on the heavier LTL shipments.

And we don't know to what degree, but we do have examples that we've handled ourselves in our managed group where we've done some mode shifting for the benefit of the customer's cost efficiency. So I think those are 2 factors that are at issue here whenever you're looking at weight per shipment levels and perhaps thinking about it going forward. .

Yes. And I'd just say -- Andrew, this is Matt. -- that I'd just say the year-over-year comparisons, a big part of that, too, is just our focus on the optimization of mix for a better productivity and a better profit outcome. .

Your next question is a follow-up from the of Jason Seidl with TDCowen. .

I wanted to follow up a little bit because we're getting some questions on sort of truckload and maybe that business stealing some LTL freight. Now one of your competitors said they don't think it's that much. But I did speak to a TMS providers saying that they are seeing LTL consolidation pickup.

I was wondering if you're seeing some of that in your business? And how much do you think truckload is stolen away? And maybe how much a yellows freight went over to the truckload sector? And then also, once we do get that eventual recovery in the truckload marketplace, do you think that just pricing is going to fix that at will flow back to the sort of natural owners of that LTL freight?.

Yes. This is Steven. One thing that we are -- I mean, we do see some of the shift that you're describing. It's difficult to tell how much, but just in -- from an anecdotal perspective, we are seeing opportunities to optimize for customers and a lot of that is created because of the pricing in truckload.

You can find lanes and different models that customer supply chain will model out just an improvement in efficiency, if you shift a portion of that to truckload. And so we've seen that play out. So we know that's happening some. It's difficult to tell how much. But history tells us, too, as capacity tightens in truckload.

Some of these shipments will shift back to LTL, we'll see that play out. The great news for us is we're positioned to benefit from all of that. When we sit down with the customer, we have all of those things at play, and it allows us to say yes, in a way that is really unique for us. And so we really like that position.

And we're -- like everyone else, we're looking forward to a better balance in the market and increase in demand, and we think we'll benefit. .

So just to summarize, you've seen a little, but you don't think it's significant. .

Yes. I mean I wouldn't say it's significant, but we have seen it. But again, I'll just reiterate, it is difficult to tell how much of that's going on. .

Dennis, we've got one more follow-up. We'll try to get one in real quick, and then we'll cut it off after that. .

Today's final question is a follow-up from the line of Ken Hoexter with Bank of America. .

Dave, just some clarifications. I've been getting some questions in. They want to understand is the core picking up in April. Was that the commentary? Or is it still down on the tonnage, it's just kind of the mix is improved. I just want to understand the commentary on the core. .

Yes. Ken, it's Matt. So we provided -- if you look in the 8-K, we provided some commentary on the April trends in core. And so what we were seeing on a shipment level for quarter, we see that up 13% in April. And on a tonnage basis, we see it up 9%. So definitely continuing to see growth there. .

Okay. Yes, I just wanted to clarify that. And then the renewals were up 5.3% versus 5.6% last quarter.

I just want to understand, Judy, does that mean we're seeing kind of a decelerating pricing environment? Or is there anything commentary you want to give on what we're seeing on the pricing side?.

I wouldn't say so. I mean I think you know it's just a representative figure related to the renewals that we did for a given quarter. And so the mix of customers that's involved with that could drive that answer. But 5.3 is still solid, and we're comfortable with that. .

And then just on the core, going back to that for a second, is there a sequential commentary as well? I know you just gave the year-over-year, but anything sequential on the quarter, March to April?.

Well, in the first quarter, core shipments were up 12% and then you're seeing the year over -- and that's a year-over-year and then in April, up 13%. So it's pretty consistent, I'd say. .

Okay.

So consistent from March to April, on the core?.

Yes. I'm looking at a Q1 number, but yes, I imagine it is. I think it's been in that low teens since -- in the last few months, up in the low teens. .

Listen, I think that -- Dennis, thanks a lot. I'm going to just close it out. We're run -- since we're running a little late. But I appreciate everybody joining us today, and that concludes our call. Thanks a lot. .

This does conclude the ArcBest First Quarter 2024 Earnings Conference Call. Thank you for joining. You may now disconnect..