ArcBest Corporation

Greetings and welcome to the ARC Best Fourth 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 Friday, January 31, 2020. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations.

Please go ahead. Welcome to the ArcBest Fourth Quarter 2019 Earnings Conference Call. Our 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 fourth quarter results, I will conduct the 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 a more complete discussion of factors that could affect a 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. I'm pleased to talk with you today about our fourth quarter in 2019 performance, particularly as it marked the end of my 10th year as CEO, which provides an opportunity to reflect on how far we have come as an organization. While the fourth quarter was the most challenging of the year, our overall performance for 2019 was the second best in the last 10 years. We didn't see the same record-setting conditions last year as those in 2018, but it was still a year full of accomplishments for ArcBest. We achieved good progress on our efforts across the company to provide an excellent customer experience to develop our people and to deliver solid financial results. When I began my role as CEO in 2010, it was a far different situation as we navigated the effects of the financial crisis which hit everyone in our industry, including us, very hard. That year we reported $1.7 billion in revenues coming almost exclusively from our LTL business and a $55 million consolidated operating loss. Fast forward to 2019 when we reached nearly $3 billion in revenue with roughly a third of that generated by our asset-light business and $109 million in non-GAAP operating income. Our balance sheet is solid and our cash flow generation strong. We know we have more work to do on the asset light side, but I'm proud of our team's evolution and our ability to give customers the breadth of solutions they require across the supply chain. Our expansion and diversification have not been without their challenges and volatile market conditions, but I am confident we are firmly on the right path for the next decade ahead. By surveying and spending time with our customers and by investing in innovative technologies to enable a more informed and actionable view of their logistics needs, we are better able to address their pain points. An example of this involves a high-end appliance manufacturer with revenue of more than $15 billion. They were an existing client for us running at about $430,000 a month in revenue for deliveries to a big box retail center. but they needed damage reduction and guarantee of final mile deliveries that were on time. Specifically for them, we created a managed solution involving mode optimization of LTL, time critical LTL, truckload, and expedite. Thanks to our solutions, they began to see reduced damages, creative coordination of specialized deliveries, and enhanced reporting and visibility. We ended up basically quadrupling that business to $1.8 million a month in revenue. In fact, it has gone so well that we are now in early stages of helping this high-end manufacturer work with another online retail seller, and our experiences show that we will be the right partner once again. As a result of our expansion and investments in recent years, our managed solutions business is growing. Our cross-sold accounts have become larger in size and are growing faster than single service accounts. And these accounts also have higher rates of retention, which is a more stable foundation for future growth. The growth in our managed business is also having a positive impact on our asset-based business. And in some cases, if we had continued to only provide LTL, this business would have been lost to us forever. Speaking of ABS, we achieved a significant milestone in paying a profit-sharing bonus to all eligible union-represented employees at ABS upon reaching a full-year operating ratio of 95.2. I'm proud of this accomplishment, and I thank everyone for their hard work. And now I'll discuss some additional detail on the fourth quarter performance of our service offerings. In the fourth quarter, we continued to offer our asset-based customers with a superior level of service in response to their specific transportation needs. The pricing environment was solid and stable during the quarter and allowed us to achieve needed increases in yields, especially on our LTL-rated shipments. But lower demand during a moderating and uncertain economic environment contributed to decreased revenue resulting from reductions in both shipments and tonnage. Lower LTL rated shipment levels have resulted in reductions in productivity metrics in our dock and city operations, thus impacting profitability relative to last year's fourth quarter. Our focus on customer service while seeking to maintain the proper balance between cost management and lower business levels put some pressure on fourth quarter operating margins relative to 2018. Later in the call, David Cobb will detail the monthly tonnage declines that we experienced in the fourth quarter, which has been the case throughout the entire year. Our tonnage declines reflect the overall weakness in the manufacturing and industrial sector of the economy and truckload capacity increases. As a result of the reductions in our LTL business, we've been opportunistic in filling available asset-based equipment capacity with both truckload and LTL transactional shipments utilizing some new systems that offer more timely information on existing opportunities. Our recent asset-based tonnage comparisons with the previous year have improved as a result of these initiatives, and in January 2020, we are seeing growth in our tonnage compared to last year. The January business growth has also resulted in improved line haul metrics. As I mentioned, in the fourth quarter, we were successful in improving price on our asset-based business. Throughout 2019, we compared back to quarters in 2018 that reflected total asset-based quarterly price increases in the range of 8 to 10 percent. Even with those challenging comparisons, in each quarter of 2019, we further improved pricing relative to 2018. The pricing environment in January is comparable with previous quarters, but the addition of the transactional shipments I mentioned earlier has impacted our revenue per hundredweight metric. Fewer total shipments and a reduction in average revenue per shipment resulted in a decline in fourth quarter ARCBEST asset-light revenue versus the prior year. As we've experienced throughout 2019, the most significant impact contributing to lower Asset Light Revenue and Operating Income was the reduced demand for our expedite services compared to the previous period. In the current demand environment, shippers have a greater number of lower cost capacity options, thus reducing their need for our expedite services. This translated into a double digit percent reduction in expedite shipments combined with a comparable decline in average revenue on these shipments. We experienced an increase in the truckload brokerage shipments handled in our asset light business during the fourth quarter, but we were challenged by lower average shipment revenue relative to the cost we had to pay for the asset light purchase transportation equipment capacity. Our total PT costs decreased during the quarter, but not in the same proportion as the decline in average shipment revenue. This combination of factors contributed to significantly reduce asset light operating income. Growth in our managed transportation services continues to be a positive contributor to our asset-light results. As I discussed earlier on the call, our managed solutions resonate with customers and there is a high level of interest in ArcBest coordinating their supply chain in a cost-efficient manner while maintaining a focus on service and transit reliability. We are certainly adding new customers and shipment activity to our managed services, but we're also finding creative ways to meet the needs of existing customers. Our managed solutions opportunity pipeline continues to grow, which is exciting because we know these solutions are particularly responsive to customers in this environment. At FleetNet, total events increased during the fourth quarter compared to last year, as an increase in the preventative maintenance service event offset a reduction in roadside repair activities. The improvement in fourth quarter operating income was the result of growth in total events and cost efficiency gains from previous technology investments. During 2019, we continued to take actions to enhance shareholder value. Throughout the year, we paid our $0.08 per share quarterly cash dividend and we bought back over 307,000 shares of our stock for a total price of $9.1 million. Under our existing repurchase program, we have approximately $13 million of purchase availability going forward. And now I'll turn it over to David Cobb for a discussion of the earnings results and the operating statistics.