ArcBest Corporation

Greetings and welcome to the ARC Best second quarter 2019 earnings conference call. During the presentation, all participants will be in a listen-only mode. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, July 31st, 2019. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead.

Welcome to the ArcBest Second Quarter 2019 Earnings Conference Call. A presentation this morning will be done by Judy McReynolds, Chairman, President, and Chief Executive Officer of ArcBest, and David Cobb, Chief Financial Officer of ArcBest. Today, following Judy and David's opening remarks about the second quarter results, I will conduct a question and answer period with them by reading submitted questions that we received last night following our earnings release. We appreciate the questions that we received. We will try to answer as many as we can during the remainder of this call. We thank you for joining us today. In order to help you better understand ArcBest 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 risks. For more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section are the company's earnings press release and the company's most recent SEC public filing. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as measured and described in the tables in our earnings press release. We will now begin with Judy.

Thank you, David, and good morning, everyone. We were pleased to report another positive quarter, one that was quite solid in historical terms but obviously experienced some moderation from last year's record-setting pace. Throughout the quarter, we saw that some areas of the economy remained strong while others were more volatile, leading to a mixed outlook among our customers and some basis for caution. But generally, the environment was positive. We have been tracking the rising trends in inventory-to-sales ratios this year and also note that there is some ongoing concern on the tariff front while industrial production and manufacturing levels were sequentially soft. All of this obviously impacts demand for logistics services. Overall, however, we are encouraged by the fact that our customers increasingly seek advice and expertise from us about their complex supply chain challenges. Given the expanded and substantial market opportunities available to us, which you've heard me talk about in the past, I am confident we are headed in the right direction. We have a lot of room to grow. In fact, internal research we recently updated shows us that nearly 8 out of 10 current ArcBest customers have a need for more than one of our logistic services, up from previously indicated levels. Our growth strategy is directly aligned with these findings and provides a clear pathway forward regardless of the operating environment. The investments we have made and continue to make in people, processes, and technology are enabling greater knowledge, visibility, and success with customers. Our people now have more and better information to have meaningful conversations with decision makers responsible for transportation and logistics spend. Specifically regarding our service offerings in the corridor, Our asset-based business once again benefited from rational pricing environments despite lower shipment levels. The baseline reset we undertook with our accounts two years ago remained a solid foundation for ensuring we are properly compensated for the value we provide. On the asset life side, our ability to offer needed solutions, including managed transportation, added value to customer conversations, offset in part by lower demand for expedited services and a market characterized by expanded truckload capacity. And now I'll discuss some additional detail on the second quarter performance of these service offerings. In the current lower demand environment, our asset-based business experienced reductions in shipment and tonnage levels that limited revenue growth and contributed to lower second quarter operating profit versus last year. Industry pricing remained positive. and our asset-based yield management initiatives continued to be successful, though the rate of increase was impacted by comparisons to last year's second quarter pricing strength. Operating costs were somewhat above expectations related to some specific increases that David Cobb will discuss later in the call as well as some reductions in productivity associated with our efforts to maintain service levels. However, I was pleased to see that during the quarter, We were able to reduce our use of rail, truckload purchase transportation, and city cartage resources. On a combined basis, total daily shipment counts were below last year's second quarter. In a reversal of what we experienced in recent quarters, our LTL-rated shipments declined versus last year's second quarter, but we increased the number of truckload-rated shipments moving in our asset-based networks. Beginning in May, we once again started having success in securing these larger size spot shipments at rate levels below last year, reflective of the current capacity marketplace. These shipments helped us fill empty lanes and positively contributed to reductions in line haul costs. Similar to what we experienced last quarter, reduced second quarter tonnage levels versus last year reflected changes in customer mix, and more challenging prior year monthly tonnage comparisons as we move through the quarter. The year-over-year reduction in total weight for shipment was not as significant as what we experienced in the first quarter, primarily due to the truckload-rated spot shipments we added. However, we did experience some further year-over-year reductions in LTL-rated weight for shipment. Our consistent efforts to improve price through our yield management actions were met with success as we secured solid price increases from our customer base, including acceptable increases on the contract and deferred pricing deals negotiated throughout the quarter. Though competitive, as always, the LTL pricing environment remains rational and is currently in a good place. We continue to benefit from the solid pricing foundation that we established with our space-based price initiative that was first implemented in August of 2017. Throughout our asset-based network, we continue to handle many shipments where proper loadability is essential and careful cargo care is very important. We believe our ability to offer these services distinguishes us in the marketplace and as a result of space-based pricing, we are more appropriately compensated for those services. Asset-based labor costs were somewhat elevated relative to business levels during the recent quarter as we retain some additional labor resources in order to preserve service levels for our customers and to maintain an adequate workforce in the midst of a tight labor market. In addition, while weight for shipment decreased during the second quarter, the average number of pieces for LTL shipment increased over last year. The combination of these changing shipment profile metrics impacted productivity, which contributed to higher costs. We continue to evaluate the proper balance between labor resources and customer service in order to achieve a more cost-efficient combination that benefits our customers and positively contributes to our asset-based financial results. On a year-over-year basis, second quarter ARC Best asset light revenue declined due to lower average shipment revenue on fewer shipments. Compared to the same period last year, Access truckload capacity in the marketplace is impacting the demand for our asset-light services and the prices we charge for them. The abundance of lower-cost capacity options available to our customers has especially impacted our expedite business levels relative to last year's record results. The significant decline in expedite revenue and shipments is the primary reason for the reduction in our asset-light business. Though total asset light load counts are below last year, we have experienced some shipment growth in the truckload brokerage portion of our asset light segment. However, average revenue levels on those shipments have also meaningfully declined, thus impacting top-line revenue and the profitability of that business. On a more positive note, as customers seek to more efficiently and cost-effectively transport their goods, we've continued to find success in offering managed transportation solutions. This is an area of our business that continues to grow over prior comparable periods and allows us to more closely partner with our customers to identify and execute on opportunities to improve service levels in a cost-effective manner. We continue to have success in using our asset-based capacity resources to effectively cover customer loads in a way that meets their specific needs while improving utilization of our owned assets. As we manage through the impact of oversupply in the marketplace and its effect on the rates we pay for capacity compared to what we're able to charge our customers, asset-light operating income has declined relative to last year. During the second quarter, we continued making long-term strategic investments to solidify our owner-operator and contract carrier partnerships. We believe these are important for our future, and they enable us to consistently provide dependable, Assured Capacity Solutions to our customers. These initiatives are benefiting us as we've experienced growth in average overall asset-like fleet size, including improving the owner-operator equipment count so far this year by over 4%. Event growth at FleetNet drove the increase in revenue compared to last year's second quarter. Variations in customer mix and the associated changes in business and pricing levels contributed to operating income that was comparable with last year's same quarter. And now I'll turn it over to David Cobb for a discussion of the earnings results and operating statistics.