Greetings and welcome to the ArcBest Second Quarter 2022 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Friday, July 29, 2022. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead.

Thank you for joining us. On today's call, we will walk you through the details of our second quarter 2022 results. Joining me today are Judy McReynolds, Chairman, President, and CEO of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. We will also have additional commentary from Dennis Anderson, ArcBest's Chief Customer Officer; and Danny Loe, ArcBest President of Asset-light Logistics and Chief Yield Officer. To help you better understand ArcBest and its results, some forward-looking statements could be made during this call. Forward-looking statements, by their very nature, are subject to uncertainties and risk. 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, our earnings slides deck can be found on the ArcBest website arcb.com, in exhibit 99.3 of the 8-K that was filed earlier this morning, or they are available as part of the webcast. We will now begin with Judy.

Thank you, and good morning, everyone. It’s a remarkable time to be at ArcBest as we celebrate another record quarter driven by the execution of our growth-focused business strategy. I’d like to begin today’s call by recognizing our amazing people and leadership team as we approach our 100-year anniversary next year. It’s their dedication and hard work that have helped us deliver superior results while keeping the global economy moving. We have so much to be proud of this quarter including revenue growth of 47% and releasing our third annual environmental, social, and governance report. The report highlights our company’s significant progress and ongoing efforts in building a safer, more sustainable, and more inclusive company and world. Our revenue growth was driven by increasing demand across our business lines and our breadth of integrated solutions that make it easy for customers to choose ArcBest. At the core of our business and strategy is a focus on technology and innovation investment, and importantly, the development of our people. Put together, we are confident we can thrive regardless of the environment and drive long-term value for ArcBest shareholders. Supply chains are getting more complex, and we are helping our customers navigate these challenges. We are committed to staying ahead of the curve to better serve customers as a trusted provider and partner. Our business results enable us to do that by continuing to reinvest in and progress our strategic growth goals. I would like to highlight three specific points this quarter that illustrate how our approach is delivering value for our customers. First, we are hearing from customers that they need more flexibility in their supply chains. Our breadth of solutions enables us to serve them across whatever mode they need without switching service providers. This makes us a unique partner. Customers continue to share positive feedback that our mode-agnostic approach is an important differentiator that helps them keep their supply chains running. Listening to our customers is our top priority. Deep, trusted relationships with customers enable us to learn more about their business needs and what’s happening in their respective markets. These discussions inform how we help them optimize their supply chains in an efficient and cost-effective manner, while also helping them prepare for a changing economic environment. Overall, we are well-positioned in growth markets and highly attuned to our customers’ needs. This leads to the increasing demand we are seeing and enables the introduction of new offerings. Strong growth in key services like truckload and managed solutions is proof that we are responsive to our customers’ needs and that our strategy is working. Second, we continue making investments in technology and innovation that differentiate us from competitors. The world is changing faster than ever, and we are working hard to ensure our investments in technology and innovation stay ahead of those changes, both with the way we work and the way customers use our solutions. With our breadth of services and a growing customer base, we have access to more data enabling us to build better tools that drive value and productivity. As the supply chain continues to be disrupted, it’s never been more important for customers to have better visibility, better transparency, and more flexibility. We can identify roadblocks, stay agile, pivot, and offer more creative approaches to drive our customers’ success. Our investments are already paying off by saving customers time and money and earning us more business. Third, we continue investing in our employees, facilities, and technology to enable additional growth. We are committed to being a leading place to work, and we know we need to keep moving forward. Expectations are rising, and with labor shortages and the fight for talent, our investments in our culture make ArcBest a place people want to work. In fact, excluding MoLo, which just celebrated their five-year anniversary, the average combined service of all ArcBest employees is approximately ten years, and over one-third of our employees have been with us for at least that long. Our tools, training, and technology enable employees to do their jobs more effectively, easily, and faster. Additionally, we continue to expand and update our facilities, which will enable even more growth. In short, ArcBest is firing on all cylinders as evidenced by our record financial results this past quarter. As we continue executing our proven successful strategy, our company is poised to continue growing, meeting customer needs, and delivering superior and sustainable results for investors even during periods of market volatility and uncertainty. And now I’ll turn it over to David Cobb, who will take you through the specifics of our strong second quarter performance and continuing business momentum.

Thank you, Judy. I’ll take this time to share details on our financial performance and provide an update on the investments we are making in our long-term growth. I’ll begin by highlighting our consolidated information. We set a quarterly record for revenues of $1.4 billion, an increase of 47% over the prior year, reflecting business and shipment growth in all three segments. On a non-GAAP basis versus last year’s second quarter, consolidated operating income increased 96% to $151 million. Our adjusted second quarter 2022 earnings per diluted share grew 112% to $4.30. The effective tax rate that was used to calculate the second quarter 2022 non-GAAP EPS was 26.2%, and under current tax laws, we expect our full year 2022 non-GAAP tax rate to be in the range of 26% to 27%, and that may be impacted by discrete items that could occur throughout the year. Asset-Based second quarter revenue was $803 million, an increase of 23% compared to last year. The second quarter non-GAAP asset-based operating ratio of 84.5% is a year-over-year improvement of 450 basis points. Second quarter tonnage increased 3.7%, and shipments increased 2%. Total second quarter billed revenue per hundredweight increased 17.7%, including higher fuel surcharges. We secured an average 8% increase on asset-based customer contract renewals and deferred pricing agreements negotiated during the quarter. The July operating information is preliminary and builds on our first half performance as we benefit from the success of our strategy powered by technology and innovation. As ABF continues to improve consistency in business levels, it enables a more efficient network, which is a key element we have been communicating. While we haven't closed out the month yet, daily tonnage in July is running 6% above the prior year month of July. Additional details on our preliminary July 2022 business trends can be found in the 8-K exhibit to the press release. Moving to our Asset-Light key metrics, we delivered strong top and bottom-line results. Second quarter revenue increased 91% versus the prior year period, reflecting demand for logistics services, the addition of MoLo, and more events in higher revenue per event in the FleetNet segment. Second quarter Asset-Light non-GAAP operating income increased 210% over last year. Demand for our truckload, managed solutions, expedite, and international solutions drove growth in operating margins as favorable market conditions combined with effective cost control created greater operating leverage. Second quarter Asset-Light EBITDA was $35 million, an increase of 185% versus the same period of 2021. Preliminary Asset-Light business trends for July 2022 have been provided in the 8-K exhibit to the press release which was filed this morning. Customer demand drove revenue growth in managed solutions and truckload, in addition to the positive influence of MoLo revenue on year-over-year comparisons, which is reflected in the preliminary July daily revenue increase of 76%. Momentum in our business and strong customer demand have enhanced our ability to generate solid cash flows. We ended the second quarter with a net debt position of $22 million. Our total liquidity of $444 million is at a very healthy level. At the end of the second quarter, the composite interest rate on all of our debt was 2.3%. Net capital expenditures totaled $60 million for the first six months of the year. We currently expect net capital expenditures in the range of $240 million to $250 million for the full year, which is lower than our previous estimates. Our equipment Class A tractor orders remain in place. We currently expect to receive all of them by the end of the year. However, due to ongoing parts shortages and manufacturing disruptions, we are now scheduled to receive a portion of the new 28-foot trailers we were expecting this year, with the balance scheduled for delivery in 2023. We continue to make progress during the quarter on upgrading and expanding our real estate, with our 2020 real estate CapEx estimated to range between $45 million to $55 million. Our target for expanding shipment capacity by the end of the year is for an increase in the mid-single-digit percentage range. We are continuing our multi-year real estate plans and have advanced projects that are scheduled for completion after 2022. Our stable operating cash flow combined with the strength of our balance sheet ensures that we can simultaneously make investments in our business, pursue value-enhancing M&A opportunities, and continue returning capital to shareholders. From a leverage perspective, we will continue targeting investment-grade credit metrics. As we have described previously, our capital allocation strategy focuses on investments in our business that have steady returns and embed enhanced growth. The benefit of these investments has contributed to our financial results.

Thanks, David. We are executing well on our customer-led strategy that results in success for our customers and long-term value for all of our stakeholders. We have deep relationships built on trust. Customers rely on us to help improve their operations and help them pivot when things change or when supply chain disruptions arise. Customers tell us that flexibility, visibility, and transparency have never been more important, so that’s what we are continuing to prioritize as we invest in our people, technology, and solutions. We are seeing strong demand with a robust pipeline. In fact, we are seeing double-digit percentage increases in the number of customers using multiple ArcBest services since the beginning of the year. Shippers are recognizing increasing value in partnering with us and they are trusting us with more of their supply chain needs because of our strong set of capabilities, our expertise, and the easier access to our solutions. This is driving outsized growth in areas like our managed solutions, which increased revenues by over 100% year-over-year in the second quarter of 2022. The Asset-Light truckload revenue growth of more than 200% was another highlight for the quarter, which was accelerated by the addition of MoLo. The benefits of more customers using more of our services are clear. This strengthens those relationships, driving greater growth, profitability, and retention, which leads to better financial performance and outcomes for our shareholders. As we’ve previously stated, we have over $5 billion in available market opportunities among our loyal customers. But the broader market opportunity is much, much larger than our existing customer base, and our differentiated value proposition is helping us build new relationships with new customers as well. In summary, we are expanding and deepening our customer relationships. This is allowing us to grow profitably and set the stage for even greater capture of our market opportunity.

Thanks, Dennis. I’ll provide an update on the MoLo integration, give a high-level overview of what we are seeing on the yield side, and provide a few updates on what we are seeing with some key asset-light services like managed solutions. The MoLo integration is progressing well and has strengthened our position to capture market opportunity. We are on track with our previously stated goals. The MoLo acquisition accelerated our pursuit of a better mix of contractual business that performs better in the current market conditions. Additionally, we continue to benefit from the experience of MoLo in matching our carrier capacity to our customers’ shipments while providing exceptional service. On the asset LTL side, we are seeing a very rational pricing environment. As David mentioned, we finished the second quarter securing an 8% increase on our deferred pricing agreement. In addition, more customers are beginning to focus on sustainability as we identify inefficiencies in their supply chains and as they focus on achieving their own ESG objectives. Our managed solutions offering was built for helping customers navigate those situations, and as Dennis mentioned, we have strong demand for that solution. Our managed solutions business continues to grow. We’ve doubled revenues compared to this time last year and tripled since 2020, and we think there are more opportunities for growth here. Now I will turn it back over to Judy.

Thanks, Danny. Before we wrap up, I want to call attention to our ESG efforts. We believe that it’s critical that our business strategy and ESG initiatives align to create a sustainable business model with compelling prospects for long-term success and value creation. In pursuit of being more transparent this quarter, we released our third ESG report in less than two years. This latest report contained our Scope 1 and Scope 2 greenhouse gas emissions as a baseline consistent with the taskforce on climate-related financial disclosures. This will give greater transparency into our progress toward being a more sustainable company, which gives our customers the information they need to reach their sustainability goals and, by extension, benefits our investors through stickier customer relationships. Additionally, improving network efficiency automatically improves environmental sustainability. We are upgrading facilities and looking at our entire system to ensure a more eco-friendly, safe, and equitable environment for all. Finally, we recently announced several additional advancements across the ESG space, including an electric truck pilot at ABF, our commitment to the DOT’s transportation leaders against human trafficking initiatives, a bronze medal from the sustainability ratings provider EcoVadis for the second year in a row, and being named on the Inbound Logistics 75 Green Supply Chain Partner list. Overall, we are delivering on our goals and driving growth. We know there is still a lot of work ahead, and we are up for the task. In closing, the successful execution of our strategy is rooted in an integrated approach that enables us to be a true partner to our customers. Our success has allowed us to accelerate our capital return program and deliver superior returns for shareholders while simultaneously investing in the business and maintaining a strong balance sheet. Our people work hard every day to serve our customers with excellence and create value for our shareholders, and our strong second quarter results reflect those efforts. This concludes our prepared remarks. David, we can now open the call up to questions.

Okay. Malaika, I think we are ready for some questions.

Our first question comes from Chris Wetherbee at Citi. Please proceed; your line is open.

Yeah. Hey. Thanks. Good morning, guys. So, maybe we could start on just sort of the progression of tonnage as we went through the quarter. It’s helpful to get that information including July. So just want to get a sense of kind of what you are seeing in terms of potential inflections in demand. Particularly in the month of July, obviously, tonnage was up 6%, but shipments were kind of flattish. I don’t know if this represents a mix change within freight towards something a little bit more heavily weighted towards industrial versus maybe a little bit of softening in consumer. Maybe give us a color around what you are hearing on demand trends in your customer would be really helpful.

Hi, Chris, this is Danny. I think we look at it, Dennis may talk a little bit more about the industry specifics, but I think it’s a reflection of our model more than anything else. We have an opportunity to serve our customers with how their demand is changing, and we talked about some disruptions in supply chains and different things. This is just our ability to respond to our customers and really have visibility into our network and what our network needs is really what's evolved as we have gone through the quarter. Dennis, do you want to cover some industries?

Yeah, absolutely. I mean, I mentioned demand is still strong from our customers, and we’ve got the opportunity to serve them in a whole lot of different ways. Certainly, we have our eyes on the macro, and we see the headlines and talk with our customers about, particularly, retail inventories, but then also what manufacturing is going on in our business as well. But when you think about our ability to respond to that in a number of ways, we are well positioned there, and supply chains are still disrupted. If you look at the constraints that are still out there in terms of labor availability, certainly component availability for manufacturers, those are two of the top things that we hear that are constraining customers. It creates freight demand even when inventories are high on the retail end. So, that would be what we are hearing from our customers in terms of demand.

Okay. That’s really helpful. I appreciate it. And then, I think as you guys have evolved to the asset-light side of the business including acquisitions, I guess, we are trying to get a sense roughly speaking of kind of what the margin profile of this business can be. Obviously, a very good quarter in the second quarter. Any help on sort of the back half of the year to think about kind of what the margin profile for the asset-light might look like?

Chris, this is Danny, again. I think I’ve got you to our long-term targets. Could there be volatility in there when you look to that? Probably so, but that hasn’t changed what we view as our long-term targets for the asset-light business.

Okay. That’s helpful. I’ll leave it there. Thanks for the time. Appreciate it.

Thank you. Our next question is from the line of Jack Atkins with Stephens Inc. Please go ahead. Your line is now open.

Okay. Great. Good morning and congrats on the great quarter, guys.

Thank you. Good morning.

Good morning. Good morning, Judy. I guess, maybe to start, if you could maybe touch on the integration of MoLo. I would love to kind of get a sense for how that’s going. What’s left to achieve in terms of some of those major milestones, whether it’s on sales force integration or whatever that might be. And then, I know the initial plan was for MoLo to be accretive by the fourth quarter. Has that been pulled forward with MoLo being accretive in the 2Q?

Hi, Jack, this is Danny. I think we mentioned that we are off to a good start with the integration progressing well. There is nothing in the integration from the systems that scares us. We are still really on target there. We’ve hit some milestones throughout the second quarter, which puts us in good shape. There is still some integration of employees that’s going on. To me, if you think about it, there was probably some disruption from the integration during the quarter that we looked at, but overall, we are very pleased with how it’s progressed and really excited about what MoLo has brought to the services that we can deliver to our customers.

Okay. And any comment on the accretion in the quarter? Or was it accretive?

Yes, Jack. We are on track. I would just say that we’ve commented previously that we were looking to be on pace for that target earn-out EBITDA rate for 2023, and we feel like we are on pace there.

Okay. Okay. Great. Thank you, Dave. And I guess maybe one more if I can squeeze it in. We’ve been seeing a significant amount of innovative technology cost over the course of the last couple of years with these pilot programs for efficiency. Just sort of curious when maybe we are going to see some additional detail or just some additional details around the traction you are getting there? When we can maybe see those rolled out in a more broad-based way across the network?

Well, yeah, Jack, that’s a great question, and we are making good progress. We had the three locations that we had in place for a while. Really, we are on pace for two of the three to be business as usual for what they are doing, so that’s pretty exciting. We got our Kansas City distribution center that we are still working towards some things. We made some pretty significant enhancements to the software that got put in recently, very recently in July, in fact. And then, we made some modifications to the mobile platforms that we are using. One kind of interesting thing is we’ve got some customers piloting with us using the equipment, and we really like that. I mean, I think that’s going to be an interesting thing to study and evaluate as we go through the year. Also, the Salt Lake City facility that we are building will be a facility that utilizes this equipment, technology, and process. It should be in operation in early 2023. And that gives us just even more to look at, but we’ve had different targets along the way. We’ve had to make some pretty significant enhancements to the software, and we really are looking forward to what we are going to see later this quarter and this year to really solidify the benefits from that. So, lots of good things going on. And again, we really appreciate the customer pilot work that we are doing as well.

Okay. Great. Thank you.

Yes.

Thank you.

Thank you. Our next question is from the line of Ken Hoexter with Bank of America. Please go ahead. Your line is open.

Great. Good morning. Just maybe some thoughts. As Judy, you move into this new kind of world of midterm operating ratio at the asset-based side, it really starts to show the power of the less-than-truckload network that you haven’t seen in over 20, 25 years that I’ve been looking at it. So, what – how do you start thinking about, one, what is the potential kind of operating level? What do you do with the cash flow? Maybe your thoughts on are there other investments that you’ve been constrained in making because you didn’t have the margins that you now can maybe make some more advancements given that cash flow?

Well, great, great comments and thoughts. It is interesting to think about whenever you see the results as they are. We put out long-term targets on our asset-based business as well. The great news is, we are on the upper end of those margins right now, which is pretty exciting, and we still have a lot of work left to do. I mean, we’ve got some pretty significant optimization projects that we are working on, and one of those is our city route optimization work that we’ve been piloting and working toward that we think will be rolled out more broadly toward the end of this year. And so, there are some technology-oriented margin improvement efforts that go along with that. It’s really interesting to look at what happens when those are put in place. I mean, I had one example; one of our distribution centers in Atlanta really benefited from this route optimization being put in place and saw an improvement in their street productivity that was over 10%. What you also saw from that facility was greater ability to grow because of the efficiency that was gained. And so, I love those kinds of examples that are efficiency-oriented. And lastly, it does open the door to capital deployment whenever you have those kinds of results, as we are targeting $45 million to $55 million worth of capital this year in a growth-efficient mid-single-digit percentage range. The deployment of capital in a business that’s returning while the assets are returning is beneficial to our customers. But we got capital expansions that we are working on; noteworthy ones are in Alaska, the Salt Lake City facility, and others. The other thing I think David mentioned is that we are doing strategies to continuously evaluate M&A opportunities, utilizing the technology and innovations work that we do.

Great. Judy, Dave, Dennis, thank you very much for the time and thoughts. I appreciate it.

Thank you. Our next question is from the line of Todd Fowler with KeyBanc Capital Markets. Please go ahead. Your line is open.

Great. Thanks and good morning. And so, I guess, I wanted to maybe just take a moment to better understand some of the asset-light trends, both in the second quarter and now into July. Revenue was down sequentially, and I guess that's a function of some of the spot pricing dynamics. But Danny, I think you made a comment about seeing a better mix to contract business, so I just wanted to make sure I understood what you meant by that, and then, purchased transportation as a percent of revenue is up a little bit here in July. I’m just kind of curious what you’re seeing from a gross margin perspective on the asset-light?

Hey, Todd. This is Danny Loe. I think, obviously, there is a weak spot market. I don’t think you’ve heard anyone say anything different. We did have exposure to those spot markets, both in the legacy ArcBest truckload business that was there and some in the MoLo business. When we talk about moving to that better mix, there is going to be the right mix of contractual and spot business, and MoLo was more contractual than the legacy business wasn’t. So, we like that, and we are moving towards that ourselves, and MoLo just puts us in a better place. It also puts us in a better place with their experience in how to manage the market, how to work through the cycles, and how to position ourselves. And so, really that’s the key to me. As you mentioned, the purchased transportation is up a little bit; that’s probably a reflection of just how the market is moving from the different pieces of that. But with our model, we are just confident that we can navigate through any cycle. We are in a better position and on a better platform than we’ve ever been to work through these cycles.

Yeah. Okay. That’s good context and that helps to kind of the progression. Just for a follow-up, David Cobb, I know you’ve got – I think scheduled wage increases coming in here in the third quarter. Is there any impact this year from the cost of living adjustments potentially being higher than where they’ve been historically? I just can’t remember how that works with your wage increases.

Yeah, sure, Todd. Just as a reminder, our union contract with annual wage increases went into effect July 1. Then the annual health, welfare, and pension increase occurs August 1. Again, as we’ve talked about, the combination of those increases is about a 2% on an annual basis over the prior year, our total compensation. Again, add to that, our operating ratio incentive, which has accrued throughout the year, and when you think about the OR levels that we are operating at, that’s another 3% of compensation increase to our folks. I think we are glad to have that, and they all appreciate it as well. When you think about just costs in our business, it’s certainly impacted by inflation across our network. We’ve seen higher costs just like parts, repairs, and equipment rentals when you think about supply chain disruption and the impact that that’s had on those items, and certainly fuel has been an impact there. The other thing is, we’ve been hiring, and you’ve seen our publicly announced hiring events, and been successful with many of those. But we’ve added some folks, so we have a higher proportion of less experienced personnel, and we have an opportunity, I would say there, to gain them some more experience and we’ve added supervision to add to that level of experience. I think there is opportunity in that cost to improve as we move forward.

Okay. Good. I appreciate the thoughts this morning. Thanks for the time.

Thank you. Our next question is from the line of Bruce Chan with Stifel. Please go ahead. Your line is now open.

Good morning, team. This is Matt on for Bruce. Congrats on the quarter and thank you for taking our questions.

Thanks, Matt.

We appreciate the color you provided on MoLo’s integration. I guess, with regards to growth, we are curious as to how priorities might change or maybe how the top-line outlook could differ here in a potentially slower growth economic environment?

Hi, Matt, this is Danny. I would say, as we look at the market, I’d point back to one of the things Dennis said. We have $5 billion of opportunity in our current customer base. We are more confident than we’ve ever been in our ability to deliver exceptional service in the truckload area than we’ve ever been. I think we are in the early stages of trying to capture that opportunity from our customer base. Yes, there is a macro component that’s out there. You’ve heard it; it’s in the headlines. You heard competitors talk about it. But I am super confident in our ability to capture the market opportunity inside of one of our customer base.

Great. And on the pricing side, are you seeing any signs of changes in shipper behavior, specifically any increases in inbound RFPs or RFQ activity?

Matt, are you referencing the truckload area, or LTL area, or which are – what’s kind of your focus?

Just generally across in all the modes.

Okay. Really in the LTL space, we are not seeing much of – we are having good conversations with customers. And again, I’d point back to our model. We don’t have to have just a price conversation with customers. We have a supply chain conversation with our customers, and so that might be mode shifting that might be an opportunity for us to really dive into their supply chain and identify inefficiencies. Some of that maybe the mode shift away from one of our services to another service based on what the customer is trying to achieve right now. But when you have those conversations, what we’ve seen is, when we are open and work with our customers and provide all the options to them, that includes every one of our service lines. And so, again, I would point back to our model. We are confident in the model that we’ve built, and so, we are excited about it. Maybe on the truckload side, just what you are seeing, there is some conversation as well–is it still three months, six-month, twelve-month annual bids? I’d say what we are seeing is it’s really dependent on the customer and what their view of the market is going to do. If they think we are at the trough, they are going to lock in 12-month rates. If they think that there is a little bit more to go down, they might be looking at three or six months. And so, yes, you are seeing a little bit more shift to the 12 month, but I think, again, it’s based on that customer’s viewpoint of where the market is moving.

Yes, Matt, this is Dennis. I would also add, when you think about, Danny talked about us being better positioned really across any cycle with all the capabilities that we have. I think about the conversations that we are having with customers, and back to your question about top-line growth, another area that we are excited about is our managed solutions, as well. And that gets us into a more strategic supply chain conversation, and so we are able to talk across all of these modes with customers. What we are hearing from them is more strategic than when you think, like rewound the clock a few months, where there would be in a more tactical got-to-get-capacity conversation. They are thinking more about how to build more sustainable supply chains, thinking about efficiency, and we are well positioned. Our sales force is excited about the managed solutions that we offer, the truckload business that we can bring to the table, and so we are very confident in the demand we are seeing there.

That’s great color. Thanks a lot.

Thank you. Our next question is from the line of Jordan Alliger with Goldman Sachs. Please go ahead. Your line is open.

Yeah, hi. Just sort of curious as you sort of go forward here, and I know demand is still relatively strong, but some concerns about where we are heading in the economy. Are you starting to get any feedback from customers around pricing and thoughts as you go into contract negotiations over the coming quarters with the expectation be; I think it will be tough on that front?

Jordan, this is Dennis again. I mean, I think we just kind of talked a little bit about this, but, the conversation with customers is really about what’s going on in their supply chain strategically. We have a whole lot more things to talk about than just price with them. I wouldn’t say that there is a large discussion about that at this point. It’s really about preparing themselves for the future and then setting up their supply chain for greater efficiency, and we have options to be able to do that. If we are going to price conversation in LTL, for example, we have managed solutions that can help a customer navigate even mode shifting or mode optimization. So, yeah, it’s a much different, more strategic conversation within these days.

Also just sort of curious if there is a slowdown at some point, if you are a shipper and you don’t need to fill up a full truck, presumably, there isn’t really an alternative for LTL, but I am just curious, are there other options that a shipper could use rather than perhaps more expensive LTL option?

Jordan, as Dennis mentioned, when you are having conversations with a customer about what they are trying to accomplish in their supply chain, our managed solutions could be inbound consolidation with a combination of LTL. It could be a poor distribution if they are looking for a cost savings. Perhaps the conversation is, how long can we hold orders? Can we hold orders for three days, compared to two days based on what their customers are expecting from them? Then we can present many different options. The beauty of our model is that we can serve and provide all those options to the customer. If the conversation is for our customer about how to lower my cost in this area, we talk about lead time. What are you looking from a lead time? What are your customers expecting? What can you do? Honestly, the environment we are headed into, we talked about a weak spot market. That does present us with a lot of opportunities for customers to do some mode shifting if they are able to hold LTL for multiple days and deliver a different solution to their customer. Again, you can’t just implement those services; you have to have discussions with customers about what they are trying to accomplish. That’s why we love our position as being able to have those full supply chain conversations with customers.

Thank you.

Thank you. Our next question is from the line of Ravi Shankar with Morgan Stanley. Please go ahead. Your line is open.

Hey, good morning, everyone. This is Indiscernible.

Hey, how are you?

If I can ask one on kind of the landscape here. In over the last couple of years you’ve seen arguably some consolidation or at least some acquisitions that maybe put some competition and better kind of stewards, but we also have heard from peers with a lot of plans to add capacity at least on the real estate side of things. Maybe, how you guys are thinking about the kind of competitive landscape capacity picture?

Well, I think what’s interesting is to look at that through the lens of a customer. If you think about the journey that we’ve been on really that we’ve acted on since 2012, since we bought Panther in 2012, what we’ve been trying to do is build up a company that is responsive really in any environment and with respect to a variety of different alternative needs of customers. What’s been interesting during, I think, the pandemic and just this very disrupted period that we’ve been through is that assets matter in the conversation, but that’s, to Danny’s point, that’s never the entire solution that you are talking about. It’s very fulfilling to us to be in a position where we can really respond to a conversation that has a variety of different twists and turns that it could take, so to speak, to get the customer in a better place from their supply chain cost and efficiencies. But I think what we look at, we are looking for some kind of an acquisition target. We are looking at the capabilities that we have and evaluating those and then thinking about what the customer is ultimately needing. We try to think a little bit longer term, three to five years, but we also see things changing very rapidly. Not only do we stay in touch with traditional M&A channels, but we also stay very much in touch with the startup community and the innovations potential dollars that you could spend. We see opportunities in both those areas. We stay active. But I think you’ve got to do it close to the customer and close to those opportunities. We have 500 tech and innovations people, including our R&D team, that really helps us think about all that and what we can do ourselves and then what we need to go and acquire. We don’t think we are exactly like any competitor; we think we are differentiated, and we think we are unique. But again, what’s common for us is always that customer need focus. And that’s what we are listening and responding to.

Got it. Very helpful. And if I could ask one operational question, I think you’ve been quite successful in the last three years leveraging transactional business on the LTL side to help balance out the network. Just curious for an update on kind of what is being there. Is there risk, and it’s been a little bit softer here, does that maybe make it harder to do? And essentially how to think about that?

Christina, this is Danny. I think when we think of that, again, we are going back to the transactional. As we walk through that, this has just become part of everyday business for us now in how we view that network. We have some of the investments we’ve made in technology and everything, we have better visibility than we’ve ever had in the assets. Our groups are working better than they ever had today really on a daily basis to understand what the network needs in that. For us, again, I’d point back that what we are seeing from a customer demand side, I don’t see that that changes with what we are going through. Some of the things we are doing actually creates more opportunities across the spectrum for us to be able to respond to the network. Hopefully that answers your question.

Yes. Very helpful. Appreciate the points. Thank you.

Thank you. Our next question is from the line of Ariel Rosa with Credit Suisse. Please go ahead. Your line is open.

Great. Good morning.

Good morning.

Judy, I wanted to ask. It seems like the market doesn’t want to give you very much in terms of the improvements you’ve made in your financial results, and perhaps some of that is reflecting concerns around the macro and that sort of thing. But it seems like you guys are seeing demand levels are still pretty strong and not quite as concerned about the sustainability of those results. So I wanted to ask you, do you think there is an opportunity to be more aggressive with the buyback, especially given that you are standing at a very attractive balance sheet position with pretty reasonable debt levels, or would you say that, right now, your bigger concern or bigger priority is really on preparing for any eventual downturn and maybe holding on to more cash than you might otherwise do?

Well, I mean, we really have, I think, a balanced approach. But I do think that we’ve seen some good opportunities to buy our stock, and we’ve been aggressive; you saw it earlier this year. We were executing on our ASR, and we felt like that was the right thing to do. We’ve had additional authorization put in place earlier this year that we are working through. But we have great confidence in this business and our growth potential and the cash flow that will be generated, and we have some other business needs that are ones that we think about. But it’s more those kinds of thoughts as we step through this than it would be any sort of fear of something that causes us. We target investment-grade sort of approach when we think about debt levels, and we want to stay in that kind of a position, but we’ve still got plenty of room. We think our stock is undervalued, and it has been a good buy. In the second quarter, we took the opportunity to address that. But thank you for the question, and we do think producing results like we had in this quarter are going to help all of that. We are glad to have record results.

Got it. And just in that context, let me ask a quick follow-up if I could. Again, what’s kind of implied by where your stock is trading, and it seems like it implies a high cost of capital. You were talking about M&A. Just maybe how you think about what the hurdle rate is for conducting M&A versus directing that cash towards buybacks. It seems like it would probably have to be a pretty high hurdle, or are you thinking more about kind of what are the additional capabilities gained from the M&A and not thinking as much about kind of the particular return hurdles on a kind of one-to-two-year timeframe?

Well, yeah, if you look at our long-term targets, we put – we included in there an objective to have returns that exceed the after-tax return at the S&P 500, and that’s been part of our incentive programs for many, many years, decades in fact. We’ve always thought about any decision that we made, including organic in that evaluation, particularly M&A. But to your point, when I think about a transaction like, for instance, the MoLo transaction, when we look at that, we look at the results we think that could be produced. But we also look at what that can do for our business. Otherwise, we have 35,000 active customers, most of whom would have great spend in the truckload area. We felt like the MoLo team, or feel like the MoLo team, and it’s proving to be the case, has a capability there that helps us with accessing capacity better. The confidence our sales team has as a result of that is proving to be even better. So, we do see specifics in these deals that help us with investments that we’ve already made getting better. That’s really important when you think about these returns as well. But it’s fun to get to look at this business and how it’s changed and how it could change. We see lots of opportunities for growth in what we’ve already invested in, but we also see the opportunity to keep ahead of the game with our offerings.

Got it. Okay. Very helpful and congrats again on the strong quarter.

Thank you.

Thank you. Our next question is from the line of Jack Atkins with Stephens Inc. Please go ahead. Your line is open.

Okay. Great. Thanks for taking my follow-up question. I just maybe wanted to circle back to something Ariel was asking, maybe following up on that for a moment, but you guys have a fairly extensive real estate portfolio. I think you own over 100 terminals in your LTL network. We’ve seen some folks look to monetize selective properties, given the strength in the commercial real estate market, and then redeploy that capital back into the business elsewhere. I know that’s probably not ideal, but I am just sort of maybe curious, given your stock is trading at sub-ten times earnings, you are not getting any credit for what you are doing with the business. Would it maybe make sense to monetize some part of that real estate portfolio to maybe be more aggressive in deploying into other parts of the business or maybe buying back stock? I just wanted to kind of fill that out there and kind of think your temp on that.

Yeah, I mean, I think what’s been important to us is to view that, Jack, over a longer period of time. It’s important to us to own our key facilities. If you get into a situation where you don’t particularly in this kind of market, you sometimes can find yourself in a vulnerable place over a facility that you really need. In other words, it’s in the hands of a landlord that may want to make a different decision than you do. We have addressed facilities through disposal of those facilities whenever we have shifted our needs or maybe the city centroid has moved and we’ve made a different decision. We do at times have those opportunities, but I think the fundamental principle in the asset-based business is if you can, you want to own your key large facilities, and it’s mostly because you want to control your destiny. The other thing, as you look at this business, it’s returning the dollars that are needed to really say that you accomplish what you need to do with respect to that because real estate is a part of that. It’s interesting to look at this business, its returns, and to say that you’ve been working on with respect to that because real estate is a part of that. It’s interesting to look at this business. It’s returning the dollars that are needed to really say that you accomplish what you need to do with respect to that. We keep our finger on the pulse of those values and what those opportunities are as well.

Okay. That certainly makes sense, and I understand. I just wanted to just take your temp on it. So, thanks again for the time. Really appreciate it.

Thank you.

Thank you. Next question is from the line of Todd Fowler with KeyBanc Capital Markets. It’s a follow-up. Please go ahead.

Hey, great. Thanks for taking the follow-up. Jack is asking about selling real estate. I am going to ask you about buying real estate. So, I think that there were a couple of comments about the planned network expansion facilitating, I think it was like mid-single-digit shipment growth in that. I wasn’t sure if that was for the year this year, or I guess, if you could talk a little bit about the available capacity you have in the network right now. And then, looking out to your 2025 targets, not looking for guidance, and I understand there is a lot of variability within the market, but would your expectation be that your shipment growth is somewhere in that mid-single-digit range to get that 2025 targets that you have?

Yes. I mean, I think, first of all, it’s for later this year is what we were referencing. With what we are going to do from a real estate standpoint in the next two years, we feel like we are going to further expand our ability to grow. We do have growth opportunities in the network today, and that’s why it’s important to really have a lot of sources of demand, which we do. It’s interesting because of the disruption that’s gone on and the growth in certain areas of the country and maybe lesser growth in other areas. We are constantly battling balance in the network, and I really felt like that. So, there is not one answer for whether we could grow in the network or do we have capacity; you really have to know more. But, again, the beauty of our approach is that we do internally know where that is, and we can address that through opportunities that we have with our customers. The other thing that is an opportunity I’d say, and David talked about this earlier, is that we’ve hired a lot of new people, and we need those people to be trained, supervised well, and more efficient. I gave the example, I don’t know if you heard it when I was talking about how our land distribution center becoming more efficient in street productivity because of the route optimization approach that we are using there. That created growth for that facility, and we saw it. We’ve got those kinds of initiatives and opportunities too. But over time, when we look out to 2025 to those long-term targets, we feel like our current plans that are in motion are going to get us there. The good news is, on the margin side, we are hitting the higher end of the margins, which is nice, but we need to do that consistently.

Yeah, we got some visibility right now in the margin side, and it’s the top-line and the other pieces, but you guys have done a really good job here in the last several quarters. So thanks for the time today.

Thank you, Todd.

Okay, well, Malaika, I think we are at the end of our time. So I think that will conclude our call.

Thank you. Ladies and gentlemen, that does conclude today’s call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.