Greetings, and welcome to the ArcBest Third Quarter 2023 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, October 27, 2023. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead.

Thank you for joining us. Today, we'll provide an update on our business, walk you through the details of our third quarter 2023 results, and then answer some questions. Joining me today for the prepared remarks are Judy McReynolds, Chairman, President and CEO, ArcBest; Matt Beasley, Chief Financial Officer and Treasurer; Seth Runser, President of ABF Freight; and Steven Leonard, Chief Commercial Officer and President of Asset-light Logistics. In addition, Dennis Anderson, Chief Strategy Officer; and Christopher Adkins, Vice President of Yield Strategy & Management are available to answer questions. To help you better understand our results, some forward-looking statements could be made. Forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that can affect our 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. There is also a conference call slide deck that can be found on the ArcBest website arcb.com in exhibit 99.3 of the 8-K that was filed earlier this morning. Now, I will turn the call over to Judy for some opening comments.

Thank you, David, and good morning. Thank you for joining us. We've been celebrating ArcBest's 100th anniversary this year, an extraordinary milestone, which is a testament to the ArcBest team and the strength of our customer-focused strategy. We work every day to be trusted advisors to our customers, which includes some of the world's largest and most recognizable brands. With ArcBest's full suite of shipping and logistics solutions, our work is critical to our customers' businesses and we don't take that lightly. We constantly work to see the world through their eyes and look ahead to help them anticipate and respond to market changes and disruptions. In fact, we view our close, collaborative and highly strategic customer relationships as an important competitive differentiator. While the overall logistics market remained soft in the third quarter, we benefited from our ability to help customers navigate market disruption. During this time of increased uncertainty, I saw the strength of our strategy firsthand as we provided integrated solutions that our customers relied on to ensure their goods continued moving through the global supply chain. We reacted with agility and I'm encouraged by the conversations we've had with customers. They reiterated that our flexible capacity and logistics expertise has met and exceeded their needs. We significantly improved our published shipment levels and pricing in our Asset-Based business on a sequential basis, and our managed transportation solution in our Asset-Light business saw shipment count levels reach an all-time high. Our relationships with our customers and commitment to innovation have been key drivers in our revenue, which has more than tripled and profitability significantly improved over the last decade, and we're not done. We continue to invest in facilities, technology, innovation, and our team. These key areas will accelerate growth and unlock additional value moving forward. First, we have a strong footprint of facilities today, which allows us to service our customers efficiently. We continue to invest in further expansion and see the opportunity to accelerate our facility plan in the current LTL real estate environment. Second, our deep commitment to technology and innovation has enabled us to transform our company, and we continue to pursue a robust set of initiatives. For example, earlier this year, we deployed a generative AI tool to support an internal team that performs quality audits of our customer service interactions. This team removes friction points and improves hundreds of processes every year, and this new tool quickly provides key insights to further advance these efforts. In addition, our ABS city route optimization project has leveraged AI to reduce mileage and decrease fuel consumption, which supports a more sustainable future. Looking ahead, we will continue developing and investing in solutions to support best-in-class service to our customers and drive business efficiencies. Lastly, our values-driven culture is deeply rooted in creativity, integrity, collaboration, growth, excellence, and wellness. We are committed to investing in our people and living out our core values every day. Before I hand the call over to Matt, I'd like to offer a few observations about what we're seeing in each of our business segments. In our Asset-Based segment, the current LTL market dynamics are contributing to improved trends. Our team continues to respond nimbly to evolving market dynamics in real time, pivoting quickly to fill our network in the most profitable way. In our Asset-Light business, while we are growing customers and shipment volumes, we are not immune to market conditions and continue to work to find efficiencies. We have managed down costs, and our team has done a great job of growing our customer base and shipment count. Our ability to help customers navigate market disruption over the past few months has demonstrated the strength of our highly experienced team and our broad suite of integrated logistics solutions. We were there for our customers to help them think holistically about their supply chains, while providing a service offering not available from pure-play operators. We continue to see opportunities to expand our relationships with existing customers. And now, I will turn it over to Matt to take you through the quarter in greater detail.

Thank you, Judy, and good morning, everyone. I will provide an overview of the quarter and give an update on our balance sheet and capital deployment plans. Consolidated revenue from continuing operations was $1.1 billion for the quarter, down 9% year-over-year. On a non-GAAP basis, consolidated operating income was $75 million, down 43%, and adjusted third quarter earnings per diluted share was $2.31. While our consolidated results reflect a softer overall market than last year, we benefited by having the right capacity options and expertise to serve customers during this period of market disruption, and we have also seen results from our cost savings and efficiency initiatives. In the Asset-Based business, revenue was $741 million, down 4% year-over-year on a daily basis, and non-GAAP operating income was $83 million. Overall, pricing remains rational and has been strengthened by recent market events. For asset-based customer contract renewals and deferred pricing agreements negotiated during the third quarter, we secured a 4% average increase. The benefit of our costs and efficiency efforts in this segment included a reduction in purchased transportation, cartage, and equipment rental costs. The third quarter non-GAAP asset-based operating ratio of 88.8% reflects a sequential improvement of 400 basis points compared to the second quarter, which is particularly noteworthy because our new labor agreement added approximately 350 basis points of costs relative to the second quarter. Excluding that increase, our sequential operating ratio improvement was approximately 750 basis points. That impressive result did not happen by accident, and I am proud of the way our team came together over the last few months to serve our customers during a time of market disruption while remaining focused on cost and efficiency. I am also pleased to report that we have carried this momentum into the fourth quarter. Excluding periods impacted by the pandemic, the average sequential change in ArcBest asset-based operating ratio from the third quarter to fourth quarter during the prior ten years has been an increase of 100 to 300 basis points. Despite this historical trend, after considering the impacts of the market disruption, recent commercial successes, a general rate increase, and cost reduction efforts, the asset-based operating ratio is expected to modestly decrease from the third quarter 2023 to the fourth quarter 2023. Transitioning to Asset-Light, third quarter daily revenue decreased 17% year-over-year. This was primarily due to lower revenue per shipment. The segment had a non-GAAP operating loss for the quarter of $4 million. We provided preliminary Asset-Light business trends for October 2023 in the Form 8-K exhibit to the press release filed this morning, and operating statistics in that business continue to reflect a softer market compared to last year. Net capital expenditures totaled $155 million for the first nine months of the year, and we currently expect net capital expenditures in the range of $270 million to $285 million for the full year, which is slightly lower than our previous estimate last quarter. Our Class 8 tractor orders remain in place, and we currently expect to receive all ordered road tractors by the end of the year. ArcBest's cash balance and total liquidity remain at strong levels. As of the end of the third quarter, we had a net cash balance of $98 million, an improvement of $36 million since the end of last year. Total liquidity stands at approximately $581 million, and despite rising rates, the composite interest rate on ArcBest's outstanding debt at the end of the recent quarter was 3.3%. Our solid financial position and strong balance sheet position us well for the future. Our capital allocation strategy includes organic capital investment and new equipment purchases, real estate additions and upgrades, and technology investments, which will enable us to continue serving our customers with excellence now and into the future. We are monitoring the market for external growth opportunities to enhance our business, and we are returning capital to shareholders while targeting investment-grade credit metrics. So far this year through yesterday, our settled share repurchases and dividends paid have returned approximately $86 million of capital to shareholders. Based on those share repurchases, approximately $48 million remains available under the current repurchase authorization for future common stock purchases. In conclusion, I am excited about our future. We are helping guide our customers through the current market with a century of experience under our belt. Our proven ability to excel across different cycles is a testament to our resilience and our strategy, and our robust balance sheet stands out, especially when customers are in search of stability in uncertain times. Now, I'll turn the call over to Seth to discuss our Asset-Based business.

Good morning. I am pleased to report ABF grew daily shipments during the quarter over 1% year-over-year while aggressively managing costs and focusing on efficiency without limiting growth. With a large amount of capacity leaving the market, customers came to us to keep their freight moving. This helped achieve a more optimal mix of freight in our network, which improved profitability. In short, we've been able to reduce costs while improving service. As Matt said, we have reduced costs in purchased transportation, cartage, and rental equipment, and we continue to enhance dashboards for our leaders, which provide real-time visibility to business and productivity levels. This enables our team to quickly and effectively take action to ensure we are using our resources in the most effective manner. As we enter our 101st year, we continue to transform ABF through innovation, investment, and an intense focus on quality. For the past two years, we've been working to improve some foundational systems and processes. We've completed over a dozen initiatives to improve our operation, and we have many more in progress. You can see the results of these efforts in the sequential improvement in our operating ratio. Our continuous improvement journey is ongoing. We are a high-quality carrier, and that means our product must be high quality. I'm pleased with our progress, but we still have more work to do. In closing, I want to highlight our approach to managing our shipment levels and optimizing our network. Our long history of using data to make decisions and the sheer amount of data we have enables us to optimize our business daily. Our levers of using dynamic pricing in UPAC to fill empty capacity are key strategic differentiators. I'm grateful for the collaboration between our teams in the third quarter, where we quickly adapted to the market to increase our mix of core business. Through our facility investments, we have added over 200 doors this year and plan to add more than 500 additional between now and the first quarter of 2025. Our focus remains on service, efficiency, and profitable growth, and we're not slowing down. Now, I'll turn the call over to Steven.

Thanks, Seth, and good morning, everyone. In the Asset-Light business, truckload margins remained soft, but we grew shipments despite weak demand and even achieved record shipment levels for our managed transportation business as we help customers navigate market disruption, which is a testament to the strength of our solutions and deep customer relationships. As Matt mentioned, we've been aggressively managing cost, and we continue to look for ways to further align costs with business levels and improve efficiency. While market disruptions continue, our breadth of integrated solutions positions us well to serve customers. Our managed transportation solution allowed us to help shippers who were impacted by the reduction in LTL capacity. We partnered with them to understand their supply chain needs and helped them avoid the capacity constraints others may have experienced. We offered creative solutions using multiple modes to keep our customers' supply chains moving, resulting in a better outcome for our customers. As customers have seen significant disruptions in the market, our stability and financial strength are differentiators. Customers need a partner they can count on, and we are well positioned to meet their needs. Now back to Judy for some final thoughts.

Thank you, Steven. Our success has been deeply tied to the ongoing pursuit of our mission to connect and positively impact the world through solving logistics challenges. We live this mission to the fullest this quarter as we navigated and successfully responded to industry disruptions. We are well positioned to understand and address customer needs with powerful capabilities and the deep expertise of a trusted team. As we look to the future, we are confident that this strong position and a keen focus on our three strategic pillars of growth, efficiency, and innovation will enable us to accelerate from here. This concludes our prepared remarks, and we'll now open the call up for questions.

Okay, Frank. I think we're ready for some questions.

Our first question comes from Ravi Shankar with Morgan Stanley. Please proceed.

So when everybody in the space is looking at the volume and revenue opportunities, you guys crushed it on costs, which was truly remarkable to see. Can you just unpack that a little bit more? Was this just operating leverage from getting more density with more volumes coming into the network? Were these explicit cost actions that were in the pipeline for a while, or are there more to come? I think the number one question in people's mind this morning is kind of how sustainable is this? So, I would love to get your insight on that, please.

Yes, thanks for the question, Ravi, and it's a good one. We saw the opportunity to better address our costs as we were adding people over the years of 2022 and 2021 and making sure that we had them at proficient productivity levels and a good experience and that sort of thing. We've always in the past used variable costs such as purchased transportation, cartage, and rented equipment to help facilitate our growth needs. But as we were finalizing our labor deal and looking at the proficiency level of our people and just the backdrop of the economy and the opportunity set, we saw a better answer and really got focused on reducing some of those variable costs and making sure that we had the right business mix as we were going into the third quarter.

Great. And so, is this considered to be like a one-time reset, or do you think there's kind of more to come in the pipeline?

Well, what I think is we're always adjusting, and we want to make sure that we have the right resources serving the best business mix. I think the asset-based team does a great job of that along with working with our sales opportunities and our yield managers. We really see this as an ongoing effort to make sure that our resources that we are deploying are the most efficient and effective while also just having a keen focus on serving our customers well.

Our next question comes from Jason Seidl with TD. Please proceed.

Thank you, operator, Judy and team, good morning. I appreciate the time. I wanted to ask a quick question on some of the October trends. Did you guys see any benefit from the cyber attack at SDs? And then, if I look at cost real quick, if you exclude labor, are you guys starting to see a little bit of a deterioration in sort of the inflationary cost environment?

Hey, Jason, this is Christopher Atkins. I will kind of report on the cyber event as it relates to our business. We did see an influx of some of that business in the first couple of weeks of October, and largely that was from customers, existing customers of ABF, that we were able to help during that time of disruption. Since then, that has largely gone back to the carrier that was handling that previously. But we are still even apart from that seeing substantial growth in our core business. As we have talked about, that business is still up 20% in October compared to June of '23.

Okay. Alright. That's good color. And on the cost side?

This is Seth. I would say on the cost side, we are starting to see some things normalize, but there are other areas like trailers, for example, where the cost is still inflated versus historical averages. But we are seeing some things start to normalize quite a bit on the cost side.

Yes, I would say one recent conversation that I have been in. I think the insurance market is pretty hardened right now. We are working through the answer there. But that's going to be one that we are watching just to highlight it.

Our next question comes from Ken Hoexter with BofA. Please proceed.

So just two questions. Shipments were up 4% year-over-year in October. Thoughts on your capacity availability now? How much can you handle the growth you talked about adding 500 doors, but between now and '25? And then I guess on the financial side, to Ravi's question, what changed from targeting flat OR to up 400 basis points? I mean, you gave mid-quarter updates. I am just wondering, on that cost side to the permanency question, he is asking, what changed from your point of view aside from the bankruptcy, which you knew by that point, just to see the sustainability of those costs? Thanks.

Good morning, Ken. This is Matt. So maybe I will start with your last part of your question then I will turn it over to Seth to cover the first part. Certainly, we saw continued momentum through the quarter, and so you could see that in how we talked about it. When we were talking on the call in July, we were discussing being able to target a flat OR even after the impacts of the new contract. Then we rolled forward to the update that we provided in August. That's when we were really starting to see the impact of the cost and efficiency measures that we had put in place, and certainly the market impacts are really starting to be felt. When we were saying that we thought we could not only overcome those increased costs, but actually should be able to show some modest improvement in the OR, certainly that momentum just continued to carry into September. That ultimately what resulted in the ability to be able to improve it by 400 basis points sequentially. And then, I'd say that kind of progression really spells out, and plus in conjunction with the GRI that was put in early in October for us to continue that momentum into the fourth quarter, which is why we said that we think we can see potentially a decrease sequentially into the fourth quarter as well. And then I'll turn it over to Seth to cover the first part.

Yes. When I think about excess capacity in the market, it really comes down to four different things. The first is people, and we feel pretty good that we're properly staffed for our current business levels, and we continue to replace attrition in strategic locations. We have a good line of sight on our growth pipeline, and we feel like we can bring on labor much easier and quicker than we did throughout the pandemic, which is a good thing. So, feel pretty good about people. On the equipment front, we continue to invest in the fleet like we have for many years. We have one of the newest fleets on the road. Our fleet is slightly bigger, and we're working on getting some of those higher-cost units out now, but we could pivot for growth. I don't see any concerns on equipment capacity for growth. The third is real estate. We've been working on our long-term real estate plan for the past two or three years. You need to be positioned well ahead of the cycle from a real estate perspective, and we have a mature network. We believe we're positioned well in those key markets. This year alone, we've opened up a new facility in Campbell, Pennsylvania. We expanded our San Antonio site. We moved into a new Phoenix facility. We're doing a lot of things on the real estate front. We feel good about where we are there as well, and we have more coming next year. The fourth is productivity. The more productive you are, the more freight you can handle for the same cost. So in my opening comments, I talked about the transformation at ABF and how we're focused on technology and optimization to ensure that we're as efficient as possible. We've completed a lot of initiatives, but we have a lot more still to do. With all that said, the investments in network visibility and our optimization tools provide us capacity for growth, and we can flex that up or down based on market conditions and what opportunities we see in front of us.

If I can squeeze in a follow-up to that, real quick, the tech investments are still broken out as one-timers; it seems like those are continuous and ongoing. Should that just be part of ongoing business at some point?

Well, Ken, I think we spoke to that in 8-K with respect to ABF. What we're seeing there is as we've moved the team back to conventional operation in Kansas City and in Salt Lake City—and we've previously done that in Indianapolis—you will, as you go forward, see all in regular operations because we're no longer piloting in those other areas. We do continue to have our innovations costs broken out and continue that same treatment where we're piloting for new customers with Vaux. We're doing some things that are very new and innovative with our customers, gaining momentum in pilot-type environments. We're continuing that cost, but at the same time, we're really excited about the prospects for a new revenue stream from that business and look forward to telling you more about that as we enter into 2024.

Our next question comes from Scott Group with Wolfe Research. Please proceed.

I want to just ask on the OR commentary around Q4. Back to Ken's point, you mentioned modest improvement in Q3; you ended up with 400 basis points of improvement. You're saying modest again. What's the right range to be thinking about when you talk about modest sequential improvement? I just want to see if you have any finer point around that.

Thanks, Scott. I would say we were very pleased with the performance in the third quarter. Like I mentioned, we're carrying that momentum into fourth. We didn't really guide to a specific range, but as I say, we think about modest now; we probably think of it in the context of maybe 100 potentially up to 200 basis points improvement, something in that range.

And then, the pricing renewals improved from 3% to 4%. I think we're all trying to understand the significance of the Yellow bankruptcy and how much the market is actually changing. Does 4% seem like the right figure? Is that a number you would expect to increase further as we move into the fourth quarter of 2024? What is the current pricing strategy?

Sure. Hey, Scott, it's Christopher. The third quarter benefit from the disruption was really a mix impact of handling, improving the mix of getting more core business, which tends to be more profitable for us, and it's more profitable for many reasons. Price is one of those, but also productivity and efficiency improvements; there are opportunities to handle that efficiently. Regarding the 4%, we believe our core business is in a really good place, and we want to maintain that long term. We want to offer fair prices to our customers for the service that we're providing. We're really trying to overcome inflation through pricing and through efficiency gains. I don't know that you'll necessarily see acceleration there in our core business, but we are always optimizing the mix to get the right mix to achieve the best income results.

Our next question comes from Jack Atkins with Stephens. Please proceed.

I just would like to maybe double click a little bit on some of the actions in the third quarter. It's very encouraging to see it flowing through to the bottom line. Can you think about the improvements that you saw specifically on the purchase transportation side? Judy, both expenses, excuse me, rents and PT were improved pretty significantly sequentially. Can you maybe give us a couple of specific examples of actions you took there to improve those costs?

Sure. I'm going to let Seth answer that question.

Yes. I would say on the City Cartage side, that's where our drivers are going out and delivering freight every day, pickup and delivery type drivers. Christopher mentioned that shift in mix, and that more consistent published core business gave us greater productivity. I'll also point to some of the technology that we've used, which is city route optimization, which Judy mentioned in her opening comments. We've seen a pretty material return from that using AI and machine learning. A lot of our internal tech optimizes those drivers going out full and also coming back. We still have two more phases of that coming. So really when you think about cartage, the more productive you are, the more you can reduce that external cost. That's going to provide better service to our customers by getting an ABF driver delivering and picking up their freight. We expect that to continue as we move through the fourth quarter and into the future because we know it is a better option on cost. As far as PET over the road, we have a lot of our own drivers where we were able to swap that. When we look at the mix of business, that shift in core has changed some of the lanes it was moving, so we were able to optimize the way our road drivers move as well with some of those network visibility tools that I mentioned. We expect those cost actions to continue throughout the fourth quarter, just in how we continue to transform the way we operate.

Okay. That's really encouraging to see. And I guess maybe shifting gears and asking about the asset-light segment for a moment. I know there have been a lot of changes there over the last couple of years through the acquisition of MoLo. But I think the fact that you guys are generating an operating loss there, and I would imagine that's probably continues into the fourth quarter. I mean, at what point do we start seeing some more cost come out in an effort to flex down the cost structure? Typically, you think about these Asset-Light businesses having a pretty variable cost structure. I am just curious, should we see—are there options to maybe take some additional costs out there, just given how challenging the business backdrop is?

For us, on asset-light, what we are seeing right now is customers are really seeing what we do in the asset-light space brings a lot of value to their supply chain. The market is such that prices are down obviously, and we are not immune to that. But at the same time, we want to keep a structure in place that allows us to capitalize when the market turns. Our view is we are just trying to strike the right balance. We are looking for ways to improve efficiency and at times reduce costs. At the same time, we want to be balanced so that we can be responsive when the market improves. That's how we think about it, and we will continue to manage it that way as we go into the rest of the quarter and then into next year.

Okay. Thank you for that.

I think the customer side of that is, just truckload is a very sought-after solution by our customers, and it just works well within our integrated solution set. We want to stay well-positioned, as Steven said.

Our next question comes from Chris Wetherbee with Citigroup. Please proceed.

One thing to ask quickly on sort of the approach to pricing. So, I guess prior to the Yellow bankruptcy, there was a little more work being done in the transactional part of the business. I guess I am curious as you think about the path forward, how much transactional activity is going to occur relative to your core book of contractual business? We have seen shipments come down; it seems like there is a mixed profile change that's occurring. At the same time, the transactional market probably has improved quite a bit sequentially. I want to get a sense of how you think about that approach going forward?

This is Christopher. So I would say it largely depends. It depends on our network, where our capacity is, where investments have been made, the market prices, and the competitive landscape. All those factors play into that decision-making process. The good thing is we're making a decision on a daily basis. Our operations, sales, and yield teams are coordinating daily, regularly communicating to figure out what is the optimal mix in our network. That changes day-to-day, and we are prepared and agile to respond to the needs of the customer.

Okay. So I guess it's fair to suggest that if we see softness in the market, as we saw in the first half of the year, that maybe you'd have a slightly different approach to the way that you try to manage it. I think there was a desire to sort of add some volume in a pretty challenging market. Would that still be the approach that you think about, or would it be more price-dependent this time around?

Yes. I think it all depends, like I said, on the marketplace. But I'd say from the third quarter, we did reduce a lot of those variable costs with cartage, rentals, and different variable costs that we've done. We will continuously monitor that and make sure that transaction business is covering any additional variable costs that we're bringing on.

Our next question comes from Jeff Kauffman with Vertical Research Partners. Please proceed.

Thank you very much, and congratulations on a very solid quarter. A couple of questions. Just one clarification on Tom Wadewitz's question. I think what Tom was going after was the trend in July, August, September in the asset-light business was shipments per day up about 3% to 4%, and suddenly in October that drops down 6%. That surprised me a little bit. Is this a function of the restructuring that you were doing on the asset-light side? This is really go-forward rate? Is October a bit of an anomaly, and we probably shouldn't read it that way on the fourth quarter? Or was there a material step-down in the asset-light market that caused October to be what it was?

I mean, again, for us, I don't know that I would read too much into it in terms of where we are headed in future quarters. We still see a tremendous opportunity. We are connecting well with customers. The service resonates well. So, we see opportunities to continue to grow. But at the same time, we feel like we are at the near the bottom or at the bottom of the pricing market. We're being careful about what we are doing in bids and that type of thing, and I think you could see that kind of show up in October. We feel like that's going to turn. It is going to come back, and we'll be in a better opportunity to grow and add volume. So, I don't see that as a trend that will continue. But we've continued to see growth in other areas in asset-light. We see managed and in some of our other services. We are starting to add more volume at a higher rate.

One thing to take note of is the managed part of that that you are talking about; we don't reflect that in the shipment count that's disclosed. There is momentum there. We do that just for clarity around the shipment level. So primarily what you are seeing when you see that statistic is truckload and, to some extent, the expedite trends, which right now are very challenging. The point that I think Steven's making is that we are a little bit more focused on making sure that these customers we are doing business with over the little bit longer-term here are right for us and we are right for them, and there is value in the relationship. That doesn't speak to the opportunity being less at all because we have robust opportunities across all of our solutions, and we're excited about that.

Judy, thank you, and that gives me a lot more clarity, so I appreciate that. Just one follow-up on Asset-Light and then one quick question on Asset-Based. So the OR, as we measure it—and I know we can argue whether that's the best way to look at this—is down about 45-ish basis points year-on-year, and about 300 of that is explained with the purchase transportation going from 84% to 87% of revenue. What's causing that other 150 basis points? Because as much as Asset-Based was a great positive surprise in the quarter, I think Asset-Light was a bit of a disappointment. Is it because expedited is down and you do have overhead costs associated with that? What would explain that 150-ish basis point decline not related to purchase transportation?

Well, I mean, I think that what we're doing is, as Steven said, just continuing to have investments in people and resources to serve that growth opportunity. And I think just as you look at the overall result, you see that. Now I'll say this: we've addressed that to some extent with some of the facility decisions that we've made, and you see the impact of those. We're continuing to look for other ways to be more efficient. One thing we haven't talked about yet on this call is just a focus on the small and medium-sized business segment. We see a real opportunity there for both growth and improved margins in Asset-Light, and we're working on that. That will be an important impact in 2024, perhaps in the second half of it, but something that's in our line of sight. Thank you for the question. I think that gives me a lot more clarity on that. Just one follow-up on Asset-Light and then one quick question on Asset-Based. So the OR as we measure it—and I know we can argue whether that's the best way to look at this—is down about 45-ish basis points year-on-year, and about 300 of that is explained with the purchase transportation going from 84% to 87% of revenue. What's causing that other 150 basis points? Because as much as Asset-Based was a great positive surprise in the quarter, I think Asset-Light was a bit of a disappointment. Is it because expedited is down, and you do have overhead costs associated with that? What would explain that 150-ish basis point decline not related to purchase transportation? Well, I mean, I think that what we're doing is, as Steven said, just continuing to have investments in people and resources to serve that growth opportunity. And I think just as you look at the overall result, you see that. Now I'll say this, we've addressed that to some extent with some of the facility decisions that we've made, and you see the impact of those. We're continuing to look for other ways to be more efficient. One thing we haven't talked about yet on this call is just a focus on the small and medium-sized business segment. We see a real opportunity there for both growth and improved margins in Asset-Light, and we're working on that. That will be an impact in 2024, perhaps in the second half of it, but something that's in our line of sight.

Our next question comes from Stephanie Moore with Jefferies. Please proceed.

So, I think you guys do a really good job managing your shipments throughout the cycle. You obviously talk a lot about the usage of dynamic LTL freight. Can you talk maybe about what you're thinking regarding a normalized shipment per day? Do you think Q3 represents an optimal mix for you guys, or do you think there's more to do here, given the disruption in the market?

Yes, Stephanie, this is Christopher. I'll start. I think I'll reference the maybe near-term. I think Seth had some longer-term plans he could speak to. But on the near-term, right now, we're targeting around 20,500 shipments per day on a daily basis, but that varies, like again, day-to-day, week-to-week, based on the opportunities that are in our pipeline and what the current capacity situation is.

Yes. I would just say we're constantly trying to optimize our mix but also leave potential for growth. We're open to that growth, and we're investing in that growth. When you think about the people, the facilities, and the efficiency measures that we've taken, that's really all to position us for long-term growth. We feel like we'll continue to do that as long as opportunities are there and profitable for us.

Yes. I mean, Stephanie, I think that's certainly what we're targeting. What’s interesting about this environment is that if you look at the underlying macro weakness, you can compare it back to some pretty rough periods. We hear comparisons back to '09, maybe even in the spring of 2020. We can see that through some of the other solutions as well as the asset-based solution. The unique and really helpful opportunity that we have is to address this disruption with our customers that resulted from the Yellow bankruptcy and other things that have gone on in the marketplace. I feel like it's not only dealing with the macro weakness but seizing on an opportunity to help our customers navigate this disruption. We've highlighted in some of our prepared comments, but I really want to highlight this for you, it's just the ability to say yes to a customer. It might be business that runs through the asset-based network, but it could also be a better fit for managed that runs with other LTL carrier partners or truckload optimization work that we're doing. It's a good model in a period of disruption, which seems to be happening a lot more often. If we navigate all of that well, we're in the 80s in an environment like that. We know we have a lot of other innovations and tech opportunities for improvement. I'm excited about our future, and we're very focused on getting even better. I want you to hopefully see that with the execution of our team in this quarter.

Frank, I think we've got time for one more question.

Our next question comes from Bruce Chan with Stifel. Please proceed.

Hey, good morning team. This is Andrew Cox on for Bruce. Thanks for taking my questions. Just wanted to ask about how you guys are thinking about the portfolio of businesses and services? What still might be missing from the portfolio and where do you guys see opportunities to add services or breadth? Should we expect the current revenue mix between asset and asset-light to hold for the next few years, or are you expecting some sort of change?

Hey, Andrew, this is Dennis. Great question. We really like the mix of capabilities that we have right now. I mean, I think we've talked in previous quarters about and talked on this call about our managed business and really leaning into that. We expect growth out of truckload and certainly, growth out of asset-based as well. So, we like the mix that we bring to customers today. Our expectation is that we expect that mix really over a long period of time to look more like our customers' spend. When you think about the size of these markets and how customers spend on freight and transportation, we expect that we're going to continue to grow the mix toward that asset-light business even as asset-based grows. That's what I would say. We're happy about the capability set we have and then expect on a long trajectory to start looking more and more like the market's spend.

Well, thank you. I think this concludes our call. We appreciate you joining us. Thank you very much.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.