ArcBest (NASDAQ:ARCB) Q1 2020 Earnings Call

0:00 Greetings and welcome to the ARCBEST First Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Tuesday, May 5, 2020. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead, sir.

0:36 Welcome to the Art Best First Quarter 2020 Earnings Conference Call. Our presentation this morning will be done by Judy McReynolds, Chairman, President, and Chief Executive Officer of Art Best, and David Cobb, Chief Financial Officer of Art Best. We thank you for joining us today. In order to help you better understand Art Best and its results, Some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section of the company's earnings press release and the company's most recent SEC public filings.

1:24 In order to provide meaningful comparisons, certain information discussed in this This conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Judy.

1:42 Thank you, David, and good morning, everyone. The COVID-19 pandemic has, without a doubt, presented our country and our industry with extraordinary challenges that have affected how we do business, both on a professional and personal level. The impact of the coronavirus pandemic has been swift and there is still much unknown, particularly about the severity and recovery across the globe. It is during these times that I feel ArcBest is especially well positioned because we have a strong foundation of long-term relationships with our customers and because our balance sheet has kept us in a position of strength with financial liquidity and we have established a culture here that strives every day to generate creative solutions for the challenges of the times.

2:35 As you will hear in more detail later, over the last month we have taken actions that further strengthened our financial position and provided for cost reductions throughout the company that helped preserve our cash resources. While cautious, due to the uncertainty of the pandemic severity or duration, we believe These were prudent steps to take. Throughout this crisis, our top priority remains the health, safety, and well-being of our employees. We began enacting safety measures back in February and we continue to follow CDC recommendations and the directives of our federal and state leaders regarding the implementation of safety and health precautions.

3:22 Over a two-week period at our campuses and locations around the country, we successfully transitioned nearly 90% of our employees to work from home. Those workplace changes have impacted about 2,100 of our employees, including our union billers, all of whom have been working remotely for the last five weeks. The strength of our technology and innovations team continues to be a major asset in making this happen in a secure manner with very few issues. The productivity level of our employees has remained high through this transition, and our workforce has adapted very well to this new normal. Only a few of our service centers were directly impacted by the virus, and while those facilities were closed for deep cleaning, We were able to make quick operational modifications in order to continue serving customers without interruption.

4:22 Each of those facilities are back up and running and appreciate the hard work of our team to get these locations back online as soon as possible while taking the necessary precautions to ensure Pardon me, this is the operator. It appears that we have lost audio for the speaker. Mr. Humphrey, are you still on the line?

5:00 Yes, I'm here.

5:03 Yes, okay. Are we online?

5:05 I think so.

5:06 Okay. Sorry about that, everyone. I think we lost our audio for a minute. I'll go back and talk about our service centers. Only a few of our service centers were directly impacted by the virus. and while those facilities were closed for deep cleaning, we were able to make quick operational modifications in order to continue serving our customers without interruption. Each of those facilities are back up and running and I appreciate the hard work of our team to get those locations back online as soon as possible while taking the necessary precautions to ensure the safety and well-being of our personnel, equipment and cargo. As a global logistics provider, ArcBest is considered an essential business, and we continue to support our customers who are providing the food and product needs of our citizens throughout the country. Our trucks have been involved in the delivery of all types of essential goods, including virus testing kits, ventilators, and hand sanitizer. For one shipper in particular, we have delivered nearly 800,000 protective masks.

6:13 We've supplied government agencies including the CDC with equipment and drivers and we continue to work with the state governments to stage needed shipments to help their citizens. We take great pride in being a part of our nation's response efforts and our employees have responded in amazing ways during these challenging times. Throughout April, the full force of the pandemic has hit our nation and many of our customers. As we reported earlier this morning in an 8K that we filed along with our earnings press release, we are experiencing large reductions in our business over a very short period of time, which required us to take difficult actions in order to reduce costs that included reductions in hours worked, salaries, wages and benefits for many of our employees, and even layoffs in certain areas.

7:07 Despite having to make these difficult decisions, We have continued to serve our customers and provide them with the superior level of service that they have come to expect from ArcBest. Before I discuss the segment details of our first quarter results, I want to say how pleased I am about our company's recent performance. This year's first quarter was one of the best first quarters in ArcBest history. Our company responded well to the seasonal business challenges that typically occur in the early months of the year. Our strong start puts us in a good position as we face the challenges ahead. Our asset base first quarter results benefited from tonnage growth and were positively impacted by our focus on matching customer shipments with available capacity in our freight network. During the quarter, our folks did a good job of balancing system resources to business levels while maintaining customer service.

8:04 The overall pricing environment remains rational. and we continue to find ways to effectively serve customers while improving operational efficiencies and managing costs within our company. Our asset-based business began to experience the initial impacts of COVID-19 related slowdowns late in the month of March. The reduction in total shipments was a result of fewer LTL rated shipments being handled in our ABF freight network. Shipments were down during the seasonally slower winter period Due to the overall weakness in the manufacturing and industrial sector of the economy. As a result, we increased our efforts to identify capacity opportunities and filled them with truckload rated spot loads as well as heavier transactional LTL rated shipments. We had success in adding these shipments in the right places in our network and we benefited from the increased productivity and improvements in several of our operational metrics.

9:05 This is not any different than we normally do in filling empty capacity, but so far this year, these transactional LTL shipments have also been a part of that operational strategy. The impact of these efforts can also be seen in our freight statistics that reflect higher shipment revenue and meaningful growth in weight per shipment. Changes in freight mix and shipment size related to the additional spot and transactional shipments contributed to a decrease in first quarter revenue per hundredweight. This total pricing metric was also impacted by lower fuel surcharge revenue compared to last year's first quarter. Excluding fuel surcharge, we had a small increase in the average price of our LTL rated business.

9:51 The pricing environment is stable and the solid yield increases on our traditional published and contractual business were reflective of what we are currently seeing in the marketplace. Our asset-based costs benefited from focused management and efficiencies gained from additional freight tonnage moving through the ABF network. First quarter efforts to increase tonnage and approved line haul trailer load average while efficiently handling the additional tonnage of our docks were successful. As a result, the increase in our first quarter operating ratio relative to the fourth quarter was well below the recent historical increase average of approximately 400 basis points. The COVID-19 pandemic did not have a meaningful impact on our asset-based business during the first quarter.

10:40 Though we began hearing from our customers about its effects on their businesses earlier in March, we first saw a significant change in our business stats during the last full week of the month. Though the late timing of these events resulted in them having a limited impact on first quarter results, they significantly impacted business levels in April, and that has continued into the first few days of May. A reduction in total shipments combined with lower average revenue per shipment were the main contributors to the first quarter revenue decrease in the ARCBEST asset lights segment versus last year. Excess available truckload capacity and weakness in industrial manufacturing contributed to lower revenue per shipment for both expedite and truckload services and significantly reduced the expedite shipment count during the quarter. Shippers continued to have a greater number of low-cost capacity options thus reducing their need for expedite services.

11:39 Purchase transportation expense was below last year but not at the rate of the revenue decline thus reducing shipment margins and pressuring our bottom line. While truckload shipments actually increased versus last year's first quarter, The double-digit percent reduction in expedite shipments combined with a small reduction in average revenue on these shipments was the primary factor impacting the asset-light loss in the first quarter. Managed transportation services and the opportunity to offer our expertise in crafting these unique solutions for customers continues to be a positive contributor to our asset-light results, as reflected in the 55% managed daily revenue growth versus last year's first quarter. As we engage with customers to understand the needs of their supply chains, we continue to find ways to craft innovative, cost-efficient solutions that support their service and transit reliability needs.

12:38 While we are growing with our existing customers in this area, we continue to identify new opportunities to serve the managed solutions needs of new customers and this trend should contribute to further growth in the future. Overall, the first quarter COVID-19 impact on our asset light business was not significant. The services offered in the international portion of our asset light segment were below the prior year as shipments and vessel movements out of the Far East slowed down beginning in February. In the second half of March, we began seeing the impact of customer closures and reduced shipment levels from those asset light shippers who continued to operate. But as we saw in our asset-based business, the late quarter timing minimized the effect on first quarter results.

13:24 At FleetNet, lower revenue resulted from a decrease in total events, primarily in roadside repair, resulting from milder winter weather during the first quarter. Revenue and operating metrics from preventative maintenance service activity improved versus last year and positively contributed to first quarter results. Compared to last year, the reduction in this quarter's operating income was primarily a result of the shortfall in total events. And next, I would like to ask David Cobb to go over the earnings results and operating statistics.

13:57 Thank you, Judy, and good morning, everyone. Let me begin with some consolidated information. First quarter 2020 consolidated revenues were $701 million compared to $712 million in last year's first quarter. a per day decrease of 3%. On a GAAP basis, we had first quarter 2020 net income of 7 cents per diluted share. This compared to 18 cents per share last year. Changes in cash render value of life insurance policies, which we have consistently identified as a reconciling item to our non-GAAP results, contributed 20 cents of this year-over-year difference in GAAP EPS. Excluding the life insurance impact and other items as detailed on the GAAP to non-GAAP reconciliation table in this morning's earnings press release, our adjusted first quarter 2020 net income was $0.36 per diluted share compared to $0.25 per share in the same period last year. ArcBest's first quarter 2020 effective GAAP tax rate was 20.3%. The tax rate was lower than prior year, reflecting the recognition of tax credits for alternative fuel and research and development.

15:07 In accordance with accounting guidance, our Best first quarter 2020 tax provision was based on the actual statutory tax rates as opposed to using an annual effective tax rate because of the inability to provide a reliable estimate of ordinary income for the full year within a reasonable range. Prior to the effects of the COVID-19 pandemic on our pre-tax income, our tax rate for the full year of 2020 was estimated to be 25 to 26%, while the effective rate in any quarter may be impacted by items discreet to that period. Asset-based first quarter revenue was $516 million, which was $10 million above last year, but because of an additional business day was relatively consistent with last year on a per-day basis. Asset-based quarterly total tonnage per day increased 4.6% versus last year's first quarter. For first quarter 2020 by month, asset-based daily total tonnage versus the same period last year increased by 5.7% in January, increased by 7.5% in February, and increased by 1% in March.

16:14 As Judy mentioned earlier, the increase in first quarter total tonnage per day was driven by the addition of spot truckload-rated shipments and LTL-rated transactional shipments added in order to utilize available equipment capacity in the ABF asset-based network. Total shipments per day in the first quarter decreased by 2.2% compared to last year's first quarter. First quarter total billed revenue per hundredweight on asset-based shipments decreased 4.3% compared to last year. Excluding fuel surcharge, billed revenue on asset-based LTL-rated freight increased slightly during the quarter. On asset-based customer contract renewals and deferred pricing agreements negotiated during the quarter, the average increase was 4.3%.

16:59 On an adjusted basis, our asset-based first quarter operating ratio was 96.5% compared to 96.9% in 2019's first quarter. As mentioned, we began to experience the effect of customers' response to the pandemic during March and meaningfully during the last week of March and continuing into April. The asset-based statistics in April versus last year were asset-based revenue per day down 21%, Total tonnage per day down 14% Total shipments per day down 16% Total revenue per hundredweight down 7.5% impacted by lower fuel surcharges and freight mix changes related to the addition of transactional shipments. The decrease in total billed revenue per hundredweight reflects a mid-single-digit decrease in billed revenue per hundredweight excluding fuel surcharge on LTL-rated shipments, which was driven by profile changes, combined with lower build revenue per hundredweight on Truckload-rated spot shipments moving in the asset-based network.

18:00 Although the April 2020 build revenue per hundredweight measure excluding fuel surcharges on LTL-rated shipments was below the prior year, pricing on traditional published business improved compared to April 2019 and sequentially improved compared to March 2020. In addition, the average increases on contractual renewals and deferred pricing agreements negotiated during April 2020 were comparable with those obtained in the first quarter. We previously announced a 15% reduction in the salaries of all non-union employees and an equivalent 15% reduction in the work hours of non-salaried non-union employees. That previous announcement included a hiring freeze and suspension of the company's matching contribution on our non-union 401 plan.

18:48 The fees that are paid to ARCBEST board members and board committee chairs have also been reduced by 15% during this period. Assuming all of these compensation, other cost reduction measures are maintained throughout the end of June. We project that the associated second quarter 2020 savings versus the same period in 2019 will be in a range of $15 million to $20 million. In addition, reductions in personnel and other costs along with operational changes in the ABF freight network Designed to better align resources with business levels have been made. As an example, we have laid off 12% of our road drivers and 14% of our service center operations touch labor employees. During this period, our cost reductions may not directly correspond to dramatic changes in business levels. However, in April, the year-over-year improvement in the asset-based segments operational productivity metrics that were achieved in the first quarter generally continued with the lower business levels.

19:45 Historically, the second quarter operating ratio for the asset-based segment seasonally improves versus the first quarter. However, due to the impact of the COVID-19 pandemic, the 2020 sequential operating ratio comparison for second quarter versus first quarter is not currently expected to be comparable to historical trends and may deteriorate on a sequential basis depending on business levels through June. Due to the uncertainties ahead, we are unable to reasonably predict the business impact of the pandemic in the segment's financial performance. Implementation of the operational changes and cost reductions that I mentioned may not directly correspond to changes in business levels while serving customers. In total, daily revenue in ARTBest asset light businesses decreased 5.6% versus last year's first quarter, reflecting revenue declines in both the ARTBest segment and at FleetNet.

20:39 The total asset-light business lost about $400,000 in the first quarter compared to operating income of $3.2 million last year, primarily due to reductions in total business levels, particularly in our expedite business. Asset-light revenue was down approximately 17% in April compared to the prior year month, driven by lower volumes associated with the COVID-19 pandemic. Purchase transportation expense decreased more than the revenue decline resulting in overall margin improvement for the month. This improvement was driven by additional expedite project business related to the pandemic. The margin improvement combined with the previously mentioned cost reductions are expected to improve profitability levels in the month of April 2020 compared to April 2019 as well as compared to each month of first quarter 2020.

21:29 This morning we filed an 8K that included our first quarter 2020 earnings release along with an exhibit that provided some additional information about our current quarterly financial results along with our recent business levels and our future expectations on certain financial metrics. This information that includes more details on our April business trends should be helpful in modeling expectations for our 2020 financial results. As Judy mentioned earlier, we were already in a solid financial position as COVID-19 began to impact our business levels and the shipping activities of our customers. As previously announced in late March, to further prepare ourselves for the uncertainty that lies ahead, we took steps to enhance our liquidity and preserve our cash. The drawdown of the remaining $180 million available under our credit facility and our borrowing an additional $45 million under our ARC privatization agreement resulted in a strong cash and short-term investments balance of $531 million at the end of the first quarter.

22:27 Our total liquidity including our cash and borrowing availability under existing facilities was $559 million at the end of the first quarter. Our financial covenants are in a good place as our adjusted leverage ratio which is calculated using net debt or debt net of cash and consequently was not initially impacted by the drawdown of our credit facilities was at and many more. Our early April 8K announcement included a $40 million or 30% reduction in ARTBest 2020 net capital expenditures, which after the reduction is now expected to be in the range of $95 million to $105 million, reflecting priority items to position the company to benefit from opportunities as conditions improve and in keeping with our long-term perspective.

23:29 2020 depreciation and amortization is now estimated to be approximately $110 million. Our total debt at the end of first quarter 2020 was $534 million, which includes the increased balance of $250 million on our credit revolver and the $85 million now borrowed on our receivable securitization. Notes payable primarily on equipment for asset-based operation equals $199 million. The composite interest rate on all of our debt is now 2.6%, which represents a 50 basis point reduction from what we were paying at the end of 2019. The interest cost net of interest income to hold the incremental cash in debt related to the recent drawdown is approximately $120,000 per month. I believe we have lost audio. Mr. Humphrey, are you on the line?

24:34 This is the operator. Am I able to hear any of the speakers at this time? Hello, can you hear me now? I can hear you loud and clear. Thank you.

24:49 Okay. Yes. Apologize for that. Let me pick up with receivable discussion. Regarding our accounts receivable and the impact of the pandemic on our customers' payment schedules, we have reached out to customers to confirm their plans for payment of outstanding invoices. As needed, we are working on an individual basis to ensure payment based on our agreed upon terms. The pandemic will have some impact on the timing of customer payments, but we are actively managing that process relative to its impact on our cash flow. We are focused on our financial position and are closely monitoring collections along with our total cash flow, which was positive for the month of April. Combined with our cash balances, we ended the first quarter with net debt of just $3 million. Our best preliminary April 30th, 2020 consolidated cash and short-term investments net of debt increased to approximately $12 million of Net Cash compared to the $3 million net debt position at the end of the quarter, reflecting positive EBITDA for the month of April.

25:55 Full details of our GAAP cash flow for the first quarter are included in our earnings press release. We have continued to take actions to enhance shareholder value with our quarterly dividend payments and treasury stock purchases. The capital allocated to these programs has been at reasonable levels. These programs will be monitored in consideration of cash requirements for operations that might occur from further economic weakness and uncertainty. Now I'll turn it over to Judy for some closing comments.

26:23 Thank you, David. Along with the steps that we've taken over the last several years to develop a full array of logistics services for our customers and the transportation marketplace as a whole have put us in a good place. The pandemic has caused changes. and our customer supply chains, which has created opportunities for ArcBest to do what I believe it does better than anyone else, and that's providing innovative solutions for our customers' most challenging needs. ArcBest is well positioned to help our customers when they experience supply chain disruptions, and we are working with both customers and capacity providers to make sure we can effectively respond as quickly as possible. During this period of uncertainty and continuing once things return to normal, The solutions we offer our customers will be responsive to their needs. We are committed to growing ArcBest regardless of the economic environment or any test that we face. Our people and our capabilities are our strongest asset and a blessing to us and to our customers.

27:26 COVID-19 has presented our company with a number of challenges, but also a tremendous opportunity to test our ability to effectively manage through a crisis. I believe that one very important factor in surviving any crisis is a strong foundation. The investments we've made in our people, customers, and carriers combined with our technology and innovations advancements have further strengthened our foundation. In times like these, we must work to improve what we can control. I'm proud of this organization and of what we are accomplishing together. We have a tenacious group of employees who have the skill and the will to get the hard work done. throughout our nearly 100 years in business, we have faced significant challenges and responded well to each one of them. And now I'll turn it over to David Humphrey to conduct our question and answer session.

28:25 David Humphrey Katelyn, I think we're ready for some questions now. Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please, for the first question. The first question is coming from the line of David Ross from Stiefel. Your line is open. Please go ahead.

28:57 Yes, good morning, Judy. Good morning, David. Hi, how are you? Hi, Dave.

29:01 Good morning. Doing well, doing well. Just wanted to... Do you see about April a little bit more color, whether there's a big difference between the first week of the month and the last week of the month, and what your customers are saying about May?

29:17 We really haven't seen much of a difference as we've gone through the month. Again, we commented about the signal that we saw toward the end of March, really began seeing the effects I think probably on Wednesday or Thursday of that week of March and what we've seen is just continued through the month of April and we're not hearing anything other than just some news about companies reopening. I think, you know, recently we had a conversation with a good number of our service center managers in the asset-based business across the country and just, you know, hearing a lot of discussion about customers reopening and some of the details there. But there still are a lot of companies, I think, that are shut down or certainly working at lower levels. And we continue, you know, to understand that and make sure that we're adjusting our workforce accordingly.

30:18 And in an environment where they seem to just be printing money and, you know, the bailout fad is back, if you will, Are you hearing anything on the pension relief side that might give you guys some relief on the orphan liabilities that you have?

30:37 Well, certainly we work on that always. And we've looked as well as I know other groups that are seeking that relief are looking for opportunities for some legislation to address that issue. So far, there hasn't been any included in any of the phases or the bills. that we've seen approved and signed by the president. But we are looking forward to perhaps an opportunity in the infrastructure bill that could be coming. But we don't have any idea about the timing of that and the likelihood of it. But just know that we work diligently on that issue and many, many others do as well. And so I share your sentiment in that there's an opportunity for it, but I wish I had more clarity for you than I do, but we'll certainly let you know if we see or hear something.

31:31 And related to that, lastly, if you could just remind us what the annual expenses related to those orphan liabilities. I don't know if you have that off the top of your head, Dave.

31:41 Well, David probably does. I think the total pension is around $150 million for those union plans, and about 50% of that is for central states. and that's where the larger part of this issue is. But I think on an overall basis, 50% of the overall dollars are paid for people who have never worked for our company. And so there's a lot of opportunity for something better there.

32:12 Okay, Dave. Appreciate it. Good to hear from you. The next question is coming from the line of Chris Weatherby from Citi. Your line is open. Please go ahead.

32:25 Great to hear you. Thanks. Good morning, guys. Good morning, David. Good morning, Chris. Good morning. Maybe can we talk a little bit about expense variability? David, you laid out some of the cost-saving efforts, and I think you've even mentioned April was EBITDA positive. But could you sort of more broadly, maybe beyond 2Q, talk about sort of the portion of the business maybe on the asset-based side, which is variable, and then maybe also on the asset-light side, how much is variable? How much can you really attack here during the downturn on the cost side?

32:56 Yeah, I think we saw some improved productivity measures in the first quarter. And even with these lower business levels that we're seeing into April, we're seeing those productivity measures generally improve versus last year. And so I think what that indicates to us is that we're able to scale with these lower business levels to that certain extent. I think it's fair to say that as business levels decline, you tend to have more costs that kind of proportionally get into sort of a more fixed sort of nature just by the virtue of those business levels.

33:41 So it does become more challenging at lower business levels, but I'm really impressed with the way the operations team has aligned with business development. Certainly, you know, that's our road drivers. We talked about that being down in our service center, touch labor being down 14%. And so that along with, you know, we've addressed cartage, we've addressed purchase transportation, we've addressed rentals, we've addressed, you know, maintenance and parking some units. And so, you know, the things you would normally do, we're doing. And so... So it's good to see, I think, those metrics, like I said, improved in April.

34:26 Okay. Okay, that's helpful. I appreciate that. And then maybe just a question on the pricing side. So it sounds like as you rolled through into April, the conversations around contractual pricing negotiations are relatively similar to what you were doing and getting in the first quarter. I guess when you just sort of think about just that general process, you know, is it Do you think just due to sort of just general capacity and dynamics within LTL, do you think that there's the potential for some deceleration of maybe pricing as we go forward, assuming tonnage is down at a relatively steep pace for most of the second quarter? I guess I just want to understand maybe sort of this new pricing dynamic that we're in within LTL and sort of how solid it is and how you guys feel about sort of variability around pricing.

35:11 I'll start with that. I mean, you know, we're... We're seeing the pricing environment continue to be solid and rational. As you pointed out, our deferred pricing agreements were comparable to the first quarter that we've been seeing in April in the midst of this lower business level. So that's really encouraging. And the way we're able to price on some of this transactional business, and we've talked about this in the past, is that is that we look at those shipments on an individual basis to ensure that they are profitable for our business and our enterprise. I think if tonnage levels were the prolonged nature of a downturn, that could present some pressure on pricing.

36:03 Well, one thing I'd add, David, is just by virtue of the fact that there are customers that are not at their normal workplaces, We've seen somewhat of a delay in our normal pricing discussions. Nothing dramatic. But there is some additional effort, I think, to get those deferred negotiations and some other increases across the finish line. But we were encouraged by the April results. A contract and deferred pricing increase level was comparable to that that we saw in the first quarter, which was Good and decent. One of the better in the company's history, I think. And that, you know, that's encouraging. And I do think that there is an understanding by customers of the value that we're providing during this time, because it is a difficult job. And I think the knowledge and understanding of that is heightened right now. And so we'll continue to watch it.

37:07 I think we've shown Our efforts toward discipline, having that space-based pricing mechanism in place really helps us make sure that the shipments that we're handling are, you know, we understand what they are and that we're able to price those well. And so all of that plays in, I think, to the result that we saw in the first quarter and will continue to. And we appreciate that we had that mechanism in place. Thanks very much for the time this morning. All right, guys. Take care. Thank you. The next question is coming to the line of Scott Group from Wolf Research. Your line is open. Please go ahead.

37:51 Hey, thanks. Morning, guys. Nice to be back. Hi, Scott. So the positive EBITDA in April, can you comment, did LTL have positive operating income and April. And do you think LTL stays profitable in the quarter?

38:10 Scott, I appreciate your inquiring mind. That's really the level of detail. And, you know, I hope you would give us credit for reaching and giving you that much. But that's, you know, on a consolidated basis, you know, we haven't closed the month yet either. But our view is that we do have positive EBITDA on a consolidated basis for the month of April, which is encouraging. And so again, we're in a net cash position at the end of the month as well, coming from a net debt position. So that was good to see also.

38:55 But anyway, thank you, Scott.

38:57 Well, David, I think it's safe to say that that was, I mean, that positive even would be contributed to by the segments of our business. You know, I feel like that is fair to say. But David's right. We haven't finally closed the books. We're in this period where we know some things about April, but we don't have the final numbers. And so we're trying to help you with what we know.

39:20 No, I appreciate that. That's helpful. And then can you help me think about this transactional LTL business so when I guess I'm struggling a little bit if pricing's up four but yields are down mid single digits where's the transactional LTL business coming from is this you taking LTL from another LTL carrier and then so what are the the net is this a good thing or a bad thing for margins profitability if it's I'm a little just confused with the transactional LTL versus traditional LTL.

39:57 I appreciate the question. You know, what's interesting about these shipments is they're opportunities that we were getting. We were, these are customers that were quoting us before and that were, you know, were able to have greater visibility into where they can work well for us in creating operational efficiencies. The largest driver on adding these shipments is empty capacity. And we've improved our network visibility and gained some better information, and that really allows us to make more intelligent decisions about each of these shipments. So in some cases, we can make, you know, lane-based, day-of-the-week decisions on adding these shipments to our network. And we feel good about our ability to meet the customer and transact with them where they are.

40:50 Perhaps they've got a TMS system or something that they're utilizing. But to the point of profitability, we judge these shipments based on their own individual profitability merits, you know, if you think about each one. And we feel like this freight is incrementally profitable for us. And so I think what's different or what's an advantage, I think, for us is just our greater – greater visibility of being able to place these shipments in areas where we know they can be beneficial to us from a cost standpoint. And for instance, if you looked at the first quarter, our empty miles were down 15%.

41:40 That's an indication that, you know, kind of the sum total of the different decisions that we've made based on published business, based on quoted, spot quoted business, both including VPQ and this transactional business really worked well for us. And so, you know, I hope that helps you.

42:00 Just one thought just to make sure I understand if I can, David, just so is this though, is this coming from another LTL, do you think? And then is your history that this transactional LTL tends to be sticky and you'll have it again next year or it's transactional and who knows?

42:18 Well, certainly because the market really isn't growing that much. I mean, I'm assuming that it would be coming, but not necessarily from one, but just from a number of different, you know, places. And we feel like if we're appropriately addressing this business with the customer, that that creates a good experience for them, and we feel like that over a period of time as we get more experience with this, that it will help us grow our active account base.

42:48 Thank you for the time, Scott. Appreciate you, man. Thanks. The next question is coming from the line of Todd Fowler from KeyBank Capital Markets. Your line is open. Please go ahead.

43:01 Great. Thanks, and good morning. And David Humphrey dusted off the stopwatch, I guess. Can you guys hear me? I just hit start. You got two and a half minutes. I wanted to ask David Cobb, you made some comments in your prepared remarks. I think we're outside of the 8K about some headcount reductions. Can you go over, I think you said about 12%, and is that a headcount reduction or is that a furlough? And then would that cost takeout be in addition to the 15 to 20 million that you quantified within the 8K and then the release?

43:33 Yeah, very good. Yeah, I appreciate the clarifying question. The 15 to 20 million does not include the operational costs You know, reductions, cost reductions that would happen at ABF for a network and system. The 12% was about 270 fewer road drivers that are laid off. And then on the service center, it's about 14%. It's about 700 or so on our dock and city operations. So a substantial percent.

44:14 Did that answer your question, Todd? Well, David, are you keeping any benefit costs related to those individuals? Is it more of a furlough or is it a true layoff where 100% of the cost would come out?

44:26 Right. For us, it's 100% of the cost. And, you know, to the extent that they have benefits that a plan, a multi-employer plan may provide, those are provided by those plans, you know.

44:38 Yeah, and that's contractual in nature, you know, the contract that we have with the IBT for those employees.

44:46 Got it. That helps. And then, Judy, just on the mix shift, you know, maybe into April, you know, it doesn't seem like there was a big increase in weight per shipment, even though you've got more truckload-weighted freight coming into the network. Can you talk about any changes in characteristic or shipment that you're seeing with your customers and maybe a sense of what percent of your customers have been considered Thank you. Thank you.

45:30 Part of that, I think, is related to our e-commerce relationships that we have with customers. We have some customers that are really, in total, e-commerce companies, and they do a lot of this. There was a greater interest, if you can imagine, in having home delivery of things like treadmills and sheds and Those kinds of items. And so we've had the benefit of participating in those. And we feel good about those in terms of the impact that they have on the company. We've adjusted, I think, over the years our understanding of the cost elements of that and the pricing that is attached to it. And what's been interesting is some of the flexibility that we've gained.

46:23 and what I mean by that is we've had some relief of the tighter appointment windows and of course no one wants you to come home into their home and so they're satisfied with you delivering you know at the curbside so some of those things have helped us from an operational standpoint but back to your question about the wait for shipment those tend to be lighter and because they had a greater influence in April, we're seeing the impact of that on weight for shipment, for example. The other thing that I'll mention is as we go into the second quarter, UPAC, our household goods moving business, those tend to be heavier shipments and because of the nature of this pandemic, not a lot is moving.

47:13 and so that will tend to have a negative effect on weight per shipment as well as we go into the second quarter. I hope that gives you a little bit more color.

47:22 Yeah, I know that's very helpful. Thanks for the time this morning. Thanks, Todd. The next question is coming from the line of Jack Atkins from Stevens. Your line is open. Please go ahead.

47:35 Hey, good morning, Judy. Hey, David. Hey, David. Hey, Jack.

47:39 Good morning.

47:40 All right. Well, so let me, I guess, go back to, if I could, the commentary around what you're hearing from your customers about their plans for May as the economy begins to slowly, you know, reopen here. You know, could you maybe kind of just provide a little bit more color either on what your service center folks are telling you or what you're getting directly from your customers or, you know, just if you could help us think about What portion of that 14% tonnage decline in April is related to customers that are shut down? Just trying to get a feel for as the economy gets opened back up, how should we think about that tonnage decline mitigating versus just what's related to slower underlying economic activity?

48:26 Well, we don't have a lot of, I think, general comments that could be made that really are helpful there. We've got a lot of different anecdotes and stories. But, you know, one area that we've seen some weakness in that I think is meaningful is the auto dealers and what we're – or not the dealers, but the auto manufacturers. And what we're hearing from them is that in mid-May, a number of them are going to be coming back online. And, you know, that has been a weakness, I think, for the better part of this year and certainly in the last five or six weeks. for our ground expedite business. One of the things that we've been able to do, which has been nice, is that we've redeployed some of the resources that typically handle that business into a business that we've done with the CDC and other kind of health care and life sciences, public administration kind of efforts. So we feel strong.

49:34 Better than you might think about how things have gone for our ground expedite team, but it will help a lot to have these auto manufacturers back open. If you look at our overall weakness in business, it's come largely from retailers and manufacturers. And other than in this auto area, I'm not hearing a lot of specifics from manufacturers yet, hoping to. and then on the retail side, I think it's just really very localized and so again, it's hard for us to make generalized comments that are really very helpful here but I am glad to hear that there's some chatter about reopening but just don't have a lot of detail to offer you.

50:23 No, that's helpful though, Judy. Thank you. Thank you for that. And I guess for my follow-up, you know, as you think about the $15 to $20 million in costs that you guys have taken out in the second quarter relative to the first quarter, how should we think about that coming back in over the balance of this year as the tonnage declines hopefully begin to moderate? At what point will you start layering on some of those non-union related costs and benefits?

50:51 Well, Jack, first of all, I just want to clarify that that $15 to $20 million is a year-over-year comparison, so compared to second quarter of 2019, that's the reduction calculation. But we really just need to evaluate as the business comes back and appreciate the optimism, and we have that as well, our expectation for it to come back. But I would just say we just need to evaluate where this goes. I don't have a definite time period at this point in time, but only just to say that it will be constantly evaluated.

51:32 Well, and the other part of that that David mentioned earlier that is naturally adjusted is the asset-based business as we see things change there. You know, having folks in layoff status That's a pool or a population of the workforce that we want to get back to work, and we have that to tap into. It's a good lever for us as business levels change in that part of the business. I think we have to be very cautious about these things, and we're on that side of the argument, let's just say.

52:13 Jack, thanks a lot. Thank you. And I'll just say we've got four more people in the queue. We're going to get to all of you. We may go a little bit over, but I want to give everybody a chance to ask questions. Thank you. The next question is coming from the line of Ken Hoekstra from Bank of America. Please go ahead. Your line is open.

52:34 Hey, great. Judy, Dave, and Dave, thanks for doing the live call.

52:37 I appreciate it. Good morning. I hope you're all well and safe. A few questions on the variability of cost, David. something not really normally thought of with a unionized carrier. And you've gone through a lot of the adjustments. But do you see any chance to make any structural changes given the volume shift here now that you've gotten rid of some of the, you talked about some of the line hall reductions and some of the office staff and at the service centers? Do you look at this and say, hey, there's a chance to make some of those structural changes we need to make to keep the competitive status?

53:17 Kid, an insightful question. And it does present a unique opportunity, really, to reexamine the network design. And so I think we will take this opportunity. And we say this and we do this all the time, that we're examining our network to make sure it meets our customer service levels and is as cost efficient as possible. But this is a little more unique. and so I agree, yes, it does present an opportunity to optimize the network even further. And so we achieved some pretty, I think, good productivity metrics in the quarter.

54:02 Some of that's through some of the software that we've implemented and network optimization that we've done. So I think just ongoing looking at that, enhancing our software and our technologies, will continue to serve us well in this time.

54:20 And then just a quick follow-up, Judy, your focus kind of over time in terms of the move toward non-asset and any change to that strategy, you like how that's heading as you move into this new environment, maybe talk a bit, you know, just given the impact of COVID shifting the business around and your kind of commentary before about the transactional shift within the core.

54:44 Well, Ken, great thought, and I appreciate the question. One of the things that we've thought about a lot is when you compare back to the Great Recession, although there's a lot of differences in the company, one of those that stands out to us is the logistics company that we are today, and that gives us so much benefit from the standpoint of being able to serve customers particularly when their supply chains are disrupted. If you look at the increase that we have, I know it's a smaller base, but the managed solutions increase is 55% in terms of revenue growth. And that's a sign of that.

55:30 That tells you that, you know, we as a logistics company can step back, work with the customer, really developed the best solution, and it oftentimes is a combination of full load, perhaps utilization of an LTL network for the final delivery, and then also in this period of unique disruption, the ground expedite and time-critical solutions that we have really, really work well, and they've shown up for us in a number of different instances. And so we feel great about that. And then Again, we talked earlier about our customers shifting more to e-commerce, those needs that have changed there. We have some good capabilities that we've really, I think, just further strengthened over the years that really started over 20 years ago with our UPAC home delivery business, and that's serving us well during this time.

56:33 I think I think that the sum total of that tells me that we're better positioned regardless of the need or the kind of the difficulty. And I appreciate being in that position. And then also I really appreciate the fact that our asset-based business is performing better in the first quarter and that we've got some good visibility into the costs and adjustments that needed to be made there.

57:06 Agree. Great. Appreciate the insights. Thanks, guys. Thanks, Keith. The next question is coming from the line of Jeff Kaufman from Loop Capital Markets. Your line is open. Go ahead.

57:19 Thank you very much. Hello, everybody. Thank you for that very detailed AK this morning. That was very, very helpful. Good. Just a couple of detailed questions. When you said $100 million in DNA, does that include the $5 million in intangible amortization or $4 million? Is it $1.15 or is it $1.10?

57:42 That is just depreciation and amortization on assets. It does not include the software amortization or intangible amortization. That would be that additional $5. Okay.

57:54 And you gave a little guidance on interest expense, but can I ask you to repeat it because I don't think I 100% understood. What should I be thinking about on a run rate interest expense quarterly with the drawdown on some of the credit lines?

58:09 Yeah, so we talked about the incremental piece being about $120,000 a month, the net between the interest income and the interest expense on the additional elevated cash level. And so... Again, we're investing, keeping that cash safe, and I guess you have a spread on the rates. Let's see. I think we gave an interest number. David, do you have that handy? Here we go. It was $2 million in the quarter versus $1 million in the second quarter of last year. So that's our estimate for the second quarter of 2020 will be 2 million versus 1 million last year, second quarter.

58:59 And that's net of interest income. That's right. Yeah, that's important. More so than it was.

59:06 That's right. And then Jeff, he mentioned 120,000 a month, which is the incremental interest expense on the drawdown.

59:16 I got you. Thank you. That was helpful. You gave a number for tonnage in April. You gave a number for asset late revenue per day. Can I ask you to break up that 17% asset light number and differentiate what FleetNet is doing in April versus the other asset light operations? I'm just trying to get a read of road traffic here.

59:40 Yeah, that 17% is just ArcBest, AssetLite, excluding FleetNet. We didn't provide any guidance or update on FleetNet.

59:51 FleetNet, I think, has been running down about 10%. That's what I want to say. But we can follow up with you on that and give you that detail. They've been down as well, mostly because of the roadside events or the lack of roadside events in that business.

1:00:09 Okay. And one last question. Thank you. The spot rate market for truckload has gone down pretty meaningfully during the month of April. Is that changing the attractiveness of any of this fill-in freight that you've been using to kind of plug gaps in the network in the last couple quarters?

1:00:31 We have seen some impact of what you're saying on our VPQ success, so to speak, and and, you know, again, as we talked about a couple times that we just, we evaluate those opportunities. We look at what will attract them. We look at the need that we have in the asset-based network to fill and, you know, make the best combination or just decision with all of that information involved. And so it's just, I think of this a little bit more like levers that we can pull and that full load business is one of those. And so we have that. We've also talked about some of the other things that are going on in the business. We've got the transactional LTL and then we have kind of this increase that we were experiencing with the e-commerce residential delivery business in April. So I think what I step back and see there is it's helpful to have those levers and to have the greater visibility to be able to see what's going to work best for us.

1:01:42 And then I think what's been better than it has is just the operational execution and response to that. And all of that seems to be coordinating well at this point.

1:01:57 Okay, Judy, David, David, thank you and congratulations in a difficult environment.

1:02:03 Hey, thanks a lot, Jeff.

1:02:05 Thank you, Jeff. Take care.

1:02:06 And we've got one more in the queue, and so we'll take our last question. Operator. Thank you. The next question is coming from Stephanie Benjamin from SunTrust. Your line is open. Please go ahead, ma'am. Hi. Good morning, everybody.

1:02:21 Hi, Stephanie. Hi, Stephanie. This is just a quick question, really a follow-up. David, I know you walked through a lot of just the productivity improvements and noted that you saw in the asset-based side some productivity improvements year-over-year in the first quarter, and those continued in April. Is there a way for you to kind of bucket the main categories where you're seeing those improvements? You did call out some software, maybe just to kind of bucket some of those main improvements just so we can kind of wrap our heads around those. So that'd be great. Thank you.

1:02:55 Yeah, you know, I think, you know, we had a number of things, you know, just the team really just pulled together, I think, and just had a remarkable result combined with the work of Yield and customer management to drive a business into the network. But on the asset-based network, I mean, I think using that network optimization software that I alluded to earlier, is paying dividends. That was developed kind of in 2019. And there's several other projects in the pipeline, I think, that will help us continue to see improvements there, like dispatch point planning and equipment optimization and some driver utilization software.

1:03:42 The other thing is on the dock and street productivity. That improved. It's interesting, during this time recently, I guess in April, with the closures and people being shut in, there's less traffic on the road. That does help your street operations somewhat. And then Judy mentioned earlier, I think, around the appointments and the residential deliveries, and those are more efficient in this time period as well. But You know, really on the dock and in the street, just improve the titer management of labor hours to those levels of business. You know, we're seeing some of our new labor management tools, like a new mobile dispatch system that was implemented in the late 2019 is also helping us there.

1:04:35 So it's kind of a combination of many things, I would say, has contributed to all that.

1:04:42 Well, and then we mentioned earlier the empty miles. The improvement in load average has been helpful. Got it. Well, I won't take up any more of your time. I really appreciate it. Thank you. Thank you, Stephanie.

1:04:56 Okay, Stephanie. Thanks a lot, Stephanie. Well, I think that ends our Q&A time, and it ends our call. We thank you for joining us this morning, and we appreciate your interest in Art Best. And this concludes our call, and thanks for joining us. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.