ArcBest Corporation

David Humphrey, Vice President of Investor Relations. Please go ahead.

Welcome to the ArtBest third quarter 2019 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President, and Chief Executive Officer of ArtBest, and David Cobb, Chief Financial Officer of ArtBest. Today, following Judy and David's opening remarks about the third 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 remaining time of this call. We thank you for joining us today. In order to help you better understand ARC-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 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. In order to provide meaningful comparisons, certain information discussed in 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.

Thank you, David, and good morning, everyone. In a challenging freight environment, we were pleased to report another positive quarter, a period that was one of the better third quarters for us in historical terms, although below last year's levels. Uncertainty with regard to trade policy and weaker demand in some areas of the economy and industry impacted us, but we were certainly pleased to see ongoing rational pricing and good response to our full supply chain solutions, particularly in managed transportation. The increase in active accounts turning to us for managed solutions gives us confidence in our strategy to produce long-term value by building informed, trusted, innovative relationships with shippers and capacity providers and delivering a best-in-class experience efficiently through their desired channels. Although these numbers aren't broken out separately, I can tell you that our managed solutions revenue nearly doubled and shipments per day more than doubled, which is very encouraging. The number of active accounts we serve also more than doubled in the quarter, as our capabilities across the supply chain through both asset-based and asset-light offerings differentiate us from the competition. Our purposeful transformation as a company has certainly contributed to much of the new business we have added. We hear from customers through internal research and external studies that we are valued for the things that matter most to them, things like problem resolution, trustworthiness, responsiveness, and ease of doing business. These differentiators improve customer retention, which in turn helps us grow our business. We continue to invest in our customer experience through technologies and processes that sharpen our delivery of services and improves customer interactions. The innovations we have pursued in areas like space-based pricing and enhanced web-based interactions, among many others, are examples of initiatives that complement the values-driven culture in which our creative problem solvers make a tangible difference every day with customers. As you know, last week we announced another innovative project that we have undertaken this year. In early 2019, ArkBest Technologies, a wholly owned ArkBest subsidiary focused on the advancement of supply chain execution technologies, began a pilot test program to improve freight handling at ABS. The pilot utilizes patented handling equipment, software, and a patented process to load and unload trailers more rapidly and safely with full freight loads pulled out of the trailer onto the facility floor and In the early stages, in a limited number of locations, this pilot provides AVF an opportunity to evaluate the potential for improving safety and working conditions for employees and providing a better experience for customers. Potential benefits include improved transit performance, reduced cargo claims, reduced injuries and workers' compensation claims, and faster employee training. As a part of this effort, ABF has leased new facilities in the test pilot regions in Indiana that are currently operational and also at a new Kansas City distribution center location expected to open in mid-2020. Also, as we previously disclosed, the transition of this test pilot program from ArcBest Technologies into ABF's field operation for more extensive and live testing has increased the asset base segment operating costs. With that backdrop on our evolving story to innovate and serve our customers in the best possible ways, I'll discuss some additional detail on third quarter performance of our service offerings. Our third quarter asset base results reflect lower demand from our customers who are navigating an uncertain economic environment while generally offering less freight for us to handle. In most cases, our customers remain the same, but they have decelerated their growth throughout this year, and our current business levels reflect that fact. The pricing environment remains rational, and we continue to have good success in achieving solid levels of increases on our LTL rated shipments. We are continuing our efforts to offer superior service levels to our customers while seeking to properly control costs. During the quarter, we experienced some slight reductions in dock and street productivity. In addition, the reductions in shipment and tonnage freight levels we are experiencing are putting pressure on operating margins as some network costs become more fixed during periods of reduced business levels. However, we have benefited from improved utilization of owned assets that has allowed us to make further progress in reducing the cost of rail, truckload purchase transportation, and Citi Cartage Resources throughout the AVF freight network. As seen in recent quarters, the decline in total tonnage and shipments versus last year's third quarter consisted of a mix of fewer LTL rated shipments combined with an increase in the number of truckload rated shipments moving in our asset-based network. During the recent period where our traditional LTL shipments were not as plentiful, we have added spot truckload shipments to help fill available equipment capacity which positively contributed to revenue totals and helped improve operational cost efficiencies at ABF as I previously mentioned. Going forward, we will continue to monitor overall business levels in order to optimize the positive impact of handling these spot shipments in our network. As David Cobb will detail later in the call, our year-over-year total tonnage trends deteriorated in each month as we moved through the third quarter. This was driven by continually lower LTL-rated tonnage trends during those same periods. That lower trend in tonnage, both on a total basis and for the LTL-rated business alone, has continued in October. The sequential monthly tonnage trends we experienced in the recent third quarter were below historical levels for the recent 10-year period. Lower LTL weight for shipment, reflective of the customer commentary I shared earlier, has been another contributing factor to the recent asset-based tonnage declines we've experienced. We continue to have success in achieving needed asset-based price increases during the recent third quarter. The lower percent increase in revenue per hundredweight that we reported for the quarter was reduced by the increases we had in adding spot truckload-rated shipments that generally have lower revenue per pound, especially in the current capacity environment. When excluding the impact of fuel, which was a year-over-year price headwind, our pricing on LTL-rated asset-based shipments was solid and very encouraging considering the current shipping environment. We understand the importance of making continual progress on yield management initiatives in order to increase revenues and improve profitability in the face of rising costs. We will strive to move forward with those efforts in the future. Compared to the third quarter last year, fewer shipments combined with reductions in revenue per shipment have contributed to a decrease in third quarter ARC Best asset-light revenue. The year-over-year change in market conditions and this year's plentiful equipment capacity moving at lower rates continues to impact the revenue and profitability mix in our asset-light business. This has especially been the case in our expedite business. The reduction in demand for expedite shipments and the lower revenue charged on handled shipments are the most significant factors contributing to both lower total revenue and operating income in our asset-light business. Shipment counts in the truckload brokerage portion of the asset-light business increased over last year's third quarter, but lower revenue per load contributed to a decline in total brokerage revenue. Thank you for joining us today. in a cost-effective manner. Many of our customers are asking us to help bring stability to their supply chain in a very uncertain freight environment. As a result, in the third quarter, we successfully executed on new managed transportation account opportunities that positively contributed to the asset-light revenue and profitability. Our managed solutions help position us with our customers to effectively navigate in any environment. At FleetNet, an increase in preventative maintenance service center events, which offsets a slight reduction in roadside repairs, resulted in total event growth and a higher revenue compared to last year's third quarter. As a result of the revenue growth and the effective cost management, FleetNet's third quarter operating income improved. And now I'll turn it over to David Cobb for a discussion of the earnings results and operating statistics.