Good morning. My name is Dennis, and I will be your conference operator today. I would like to welcome everyone to the ArcBest First Quarter 2024 Earnings Conference Call. 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 recent first quarter 2024 results and then answer some questions. Joining me for the prepared remarks are Judy McReynolds, Chairman, President and CEO of ArcBest; Matt Beasley, Chief Financial Officer; and Seth Runser, our President of ABF Freight. In addition, Steven Leonard, Chief Commercial Officer and President of Asset Lot Logistics; Dennis Anderson, Chief Strategy Officer; and Christopher Atkins, Vice President, Yield Strategy and management are available to help answer questions. To help you better understand ArcBest in our results, some forward-looking statements could be made during this call. Forward-looking statements, by their very nature, are subject to uncertainties and risks. 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, there is a conference call slide deck that can be found on the ArcBest website, arcb.com and exhibit 99.3 of the 8-K that was filed earlier this morning. Before I turn the call over to Judy, I want to let you all know that I will be retiring from ArcBest at the end of August. So the second quarter earnings conference call will be the last one I do. It's been a privilege being a part of this wonderful company for my entire career. I came here right out of college in 1983, and it was the best career decision I could have made. It's been an honor to have been part of the success story of growing from a $468 million LTL company into a multibillion-dollar integrated logistics company. But as the proud grandfather of 7, I'm looking forward to spending more time with my family. I look forward to watching and cheering for ArcBest as it continues to prosper in its second century of business. With that, I will now turn it over to Judy.

Good morning, everyone. I'd like to begin by expressing my heartfelt gratitude to David for his enormous contributions to ArcBest. As he prepares for a well-deserved retirement, we celebrate his remarkable tenure of nearly 41 years with us, 26 of which he spent leading our Investor Relations team. Throughout my time as CEO and even before that, I've had the privilege of working closely with David. He has been an outstanding colleague and friend, and his dedication and leadership have been instrumental to our success. I am excited to welcome Amy Mendenhall as our new Head of Investor Relations. Amy has been with ArcBest for 26 years and until recently served as Vice President, Controller for asset-light operations. Earlier this year, Amy assumed the role of Treasurer, and she has been working closely with David to ensure a seamless transition as she adds Investor Relations responsibilities. We believe the core of ArcBest's success is our people, and our people rose to the occasion this quarter as we navigated continued market softness and weather events. Despite these challenges, we delivered solid first quarter results, including generating $1 billion in revenue and nearly $43 million in non-GAAP operating income. Our focus remains on efficiently running our business, delivering a high-quality service that our customers value, and effectively managing costs. Here are some key highlights from the first quarter that show our continued focus on our 3-point strategy of accelerating growth, increasing efficiency, and driving innovation, all while delivering a high-quality service that our customers value and effectively managing costs. Demand for our services remains strong with a solid pipeline that has grown by 35% since the start of the year as our best continues to act as a trusted adviser to customers, helping them solve their logistics challenges. We have seen positive trends in our core asset-based business with daily shipments and tonnage both increasing over last year. Our asset-light shipment volume has grown significantly with double-digit growth in the managed transportation solutions. This is a testament to our commitment to helping our customers optimize their supply chains. A large and long-time customer recently told us how much they value our hands-on approach to creating logistics strategies that enhance flexibility in their network, increase efficiencies, and reduce costs. Despite severe weather conditions in January, we achieved the highest on-time performance and network efficiency since 2021, a testament to our laser focus on operational excellence. We continue to make strategic investments to accelerate growth and increase operational efficiency. For instance, the opening of a new facility in Olathe, Kansas, allowed us to relocate city operations from the Kansas City distribution center, leading to a significant increase in productivity across the facilities. We anticipate similar productivity gains with the upcoming Lithia Springs, Georgia facility set to open in June, which will enable us to relocate our Atlanta area city operations from our Atlanta area distribution center. And we remain committed to innovation. In March, we announced the next step in our Box Suite FOX smart autonomy, which includes forklifts and reach trucks that leverage automation and teleoperations when needed. This transformational solution empowers customers to unlock supply chain efficiencies across their facilities. Before I pass the call to Matt, I'd like to address the noncash impairment charge related to our best equity investment in Fantom Auto, which resulted in a $22 million reduction in net income. For context, in January of 2022, ArcBest announced a $25 million investment in Fantom Auto as part of a transformative initiative centered around remote-operated autonomous forklifts developed for use in ArcBest customer locations. Since our March launch of the Box Smart Autonomy solution, we've seen significant customer interest, and we currently have pilots underway with key customers. These pilots are leveraging our own technology solutions for any required teleoperations, instead of the Fantom Auto solution we previously used. Box is just one example of our proud legacy of developing creative solutions and investing in strategic and transformative initiatives. We remain encouraged by our progress and are committed to staying involved in leading-edge innovations to help our customers solve real supply chain challenges. And with that, I'll turn it over to Matt to take you through the results in more detail.

Thank you, Judy, and good morning, everyone. Despite the market backdrop, I'm pleased to report that ArcBest delivered solid financial performance for the first quarter of 2024. Let me start with an overview of our consolidated results. During the first quarter, we generated $1 billion in revenue, down 6% versus last year. Our non-GAAP operating income from continuing operations was $43 million compared to $52 million last year. Adjusted earnings per share were $1.34, a decrease from $1.58 in the first quarter of 2023. Despite a 3% decrease in revenue per day and additional costs related to a new labor contract, our asset-based business achieved the same level of non-GAAP operating income as the first quarter of last year. The $9 million decrease in consolidated non-GAAP operating income was primarily driven by our asset-light business; we saw impacts from January's weather in a softer truckload market. Now, let's talk about the 2 segments in more detail. Starting with the Asset-Light segment. First quarter revenue was $396 million, a daily decrease of approximately 9% year-over-year. While shipments per day increased 14%, revenue per shipment decreased 20% due to the softer market and growth in our managed business, which has a lower revenue per shipment. The non-GAAP operating loss of $4.7 million for the quarter was largely due to weather in January, which increased purchase transportation costs. However, I'm pleased with the improvements we saw throughout the quarter, with a small loss in February and a slight profit in March on a non-GAAP basis. We have maintained our focus on reducing operating expenses and improved employee productivity over 27% on a year-over-year basis. Looking at preliminary results for April that were filed in the 8-K this morning, shipments per day are trending higher by 10%, while revenue per shipment is down 18% and revenue per day is down 7% compared to April of last year. While the April numbers are somewhat lower than March, I'm encouraged by the improvement in purchase transportation costs, which helps margins and overall operating results. With our improvements in operating costs and productivity, we are well positioned for the eventual recovery of the truckload brokerage market. Moving on to our asset-based business. First quarter revenue was $672 million, a per day decrease of 3%. The segment's non-GAAP operating ratio was 92.0%, an improvement of 30 basis points versus the first quarter of last year and 430 basis points above the fourth quarter of 2023. The sequential performance was generally in line with the past performance we have seen in softer freight environments. As we move from a strong fourth quarter into our first quarter with more muted demand and higher union benefit and profit-sharing costs, we optimize our freight mix, maintain pricing discipline, manage costs lower, and improve productivity, which all contributed to our results for the quarter. First quarter tonnage per day decreased by 17%, and daily shipments were 6% below prior year levels, primarily due to lower transactional volumes and lower tonnage levels more broadly for the industry. However, our core LTL shipments and tonnage continued to grow, contributing to improved productivity and better financial results. Our year-over-year billed revenue per hundred rate increased over 15% in the first quarter, which was driven by higher prices in our transactional business and a mix shift towards our growing core business at a higher revenue per hundredweight. We secured an average increase of 5.3% on our customer contract renewals and deferred pricing agreements during the quarter demonstrated continued pricing discipline. Preliminary asset-based results for April show lower year-over-year tonnage in shipment levels and higher prices as we continue to manage our mix of business with more core and less transactional shipments, leading to a better productivity and profit outcome. The average sequential change in the asset-based operating ratio from the first quarter to the second quarter over the last 4 years has been an improvement of approximately 200 to 300 basis points. We are proud of our first quarter performance and our solid financial position. As Judy said, we continue to pursue growth, efficiency, and innovation while delivering superior service to our customers and value to our shareholders. Seth will now discuss how ABF continues to advance its proud tradition of excellence.

Thanks, Matt. Our focus remains on the factors within our control that contribute to operational excellence: our people, productivity, and capacity. Let's start with our people. We pride ourselves on our strong culture. Over the years, we have successfully navigated various freight environments in the spirit of determination, adaptability, and excellence continues to thrive among our employees. We invest in our employees, ensuring they are well trained and fully understand our strategy. This empowers them to perform at their best, and we're proud to have been repeatedly recognized on Training Magazine's Apex Awards list for our commitment to our employee training and development. This year marks the 40th anniversary of our quality process, a 5-step problem elimination process that empowers our frontline employees to identify and resolve problems, enhancing our productivity and service. We have a dedicated team of operations experts working closely with our frontline teams in key locations to refine processes and improve operational execution. These efforts have led to double-digit productivity gains at these key locations, expanding capacity and improving operating results. We plan to extend this initiative to more locations throughout the year. Our investments in technology are fueling productivity and yielding tangible benefits. We are developing tools that enhance network visibility and empower our frontline teams to make real-time, data-driven decisions. Here are a few examples of the tools we've recently deployed: City optimization, which leverages AI and machine learning to drive efficiencies, continues to save us around $1 million each month. We are currently piloting the next 2 phases of this project at multiple locations. Our new dock software enhances visibility into dock activity. Early results from locations where the software has been installed are promising. We developed in-house labor planning applications for our distribution centers and tools that predict hiring needs based on forecasted demand. These are being rolled out in additional locations. These new tools have enhanced freight visibility and resource management across our network, and we expect them to continue delivering benefits for the years to come. Regarding our network and our facility roadmap, we operate a mature nationwide network and have a robust process in place to identify where we need to increase capacity to meet customer demand. Since the end of 2021, we've added roughly 500 doors, and we plan to add around 280 doors the rest of this year, including the 4 yellow facilities. Our technology tools and network design strategies are amplifying our capacity. As Judy said, in March, we opened our new facility in Olathe, Kansas, which has already led to a double-digit improvement in productivity at the nearby distribution center. This additional capacity will support future growth. We continue to invest in our fleet, which is one of the newest on the road. This has reduced repairs and lowered operating expenses and positioned us to respond with the reliable capacity our customers expect as market conditions improve. We have a robust pipeline of optimization projects on our roadmap, all aimed at delivering customer value and positioning us for growth, both in the short and long term. In closing, I would like to congratulate our team on some recent external recognitions, including the LTL Carrier of the Year award from several companies like Coyote, TQL, American Group, and Express. We were also honored to receive the ATA's Prestigious Excellence in Security Award last week. A sincere thank you to our people for all you do. I will now turn it back to Judy for some closing remarks.

Thank you, Seth. At ArcBest, we help keep the global supply chain moving. Our commitment to investing in our people, our solutions, and our technology is unwavering, and it is this commitment that fuels our growth. Our customers appreciate the depth of knowledge and experience we bring to the table, helping them navigate their most complex challenges. It's so rewarding when I hear feedback from our customers on the challenges we've helped them solve. We are honored to receive external recognition, especially when it highlights performance in key areas. So I was pleased for ArcBest to be recognized by Newsweek and Statista as one of America's most responsible companies in 2024. ArcBest has a long history of good stewardship and taking intelligent risks on our path to growth. That concludes our prepared remarks, and now I'll turn it over to David Humphrey. Thank you.

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

Your first question is from the line of Ravi Shanker with Morgan Stanley.

David, our best second century will be better than its first, but it won't be the same without you. Thank you for all the help over the years.

Thank you.

Judy, maybe absolutely, maybe at a high level, how do you guys think of the balance between price and volumes, especially as we enter an upcycle here? And kind of how do you think about a modeling perspective, operating leverage versus pricing dropping through to the bottom line?

Yes. I'll let Christopher answer that question. He's our Head of Yield strategy.

Sure. So really, this is a balancing act between price and volume. We really want both. Obviously, we want growth. We want that top line growth, and we need to be compensated in the right way to produce good financial results. So we have a robust activity-based costing system that informs our pricing model. That's something we've invested in for many decades now that's proprietary to us, something that we own personally and that we maintain just over time. And that's something that we rely heavily on for pricing to make sure at an individual shipment level and at a customer level to make sure that the business is operating profitably for us. So in terms of existing business, we're making sure that we're securing the increases that we need for that business to be sustainable for us and for new business, we're able to leverage that costing model to make sure that just reviewing the prospective expenses that, that business would bring on, that is going to operate at the levels that we need to grow. So really, it's a balancing act of both, like you said, but we need growth and we need to get the right pricing results for that growth.

But as those volumes come back, will you see higher incremental margins than you have in previous transitions from down cycle to up cycles?

Yes. I mean, Ravi, I would say, across both businesses, we believe that we've got a lot of operating leverage. I mean, certainly, a lot of that's created on the ABF side, but all the efficiency and productivity initiatives that Seth has been talking about, and we remain focused on being able to profitably serve the growth that Christopher is talking about. And I would say the same on the asset-light side. I mean a lot of these as the market turns, you're going to see the vast majority of that revenue increase dropped to the bottom.

Your next question is from the line of Jason Seidl with TD Cowen.

Thank you, operator. David, gee, it's been almost 3 decades of you helping me. It's definitely not going to feel the same without you, but well-earned retirement, and I guess some of us might think you're doing this just to get the truck finally.

Yes, they won't give me one either, Jason.

Well, come on, you got 7 grandkids. They might want them. A few things here on the tonnage side to help us better understand what's going on behind the numbers. Could you remind us when we sort of lap that transactional freight disposals? And if we would back that out on the tonnage side, what would that look like? And how would that compare to seasonality?

Yes, sure. So Jason, it's Christopher. So really, the tons that you saw a pretty significant change as it relates to the second half of last year. So I think you're going to see these more dramatic changes that you're seeing in the first quarter. This quarter and in second quarter, I think you're going to see those trends persist. And then as we get into the third quarter, I think you'll see more consistent results there in terms of tonnage and shipment changes from a moving-forward basis.

And then how would that compare if you back it out right now to seasonality?

Comparing for the first quarter?

Yes.

So I think first quarter is from fourth to first operated similar to seasonality from our core business.

Our next question is from the line of Jordan Alliger with Goldman Sachs.

And David, congrats on your upcoming retirement. We go back a pretty long way. So it's great, great you're getting there.

So I guess my question is maybe a follow-up thinking about weight per shipment. If maybe we start to normalize a little bit on this transactional versus core in the back half, I mean, can we also expect weight per shipment to start to look a little bit more even-keeled and then perhaps more indicative of how well the economy is doing? I know historically, that's been a key metric to take a look at. And is there a way to get a sense for what proportion of your LTL business is core versus transactional overall?

Yes, thank you, Jordan. This is Matt. As we consider weight per shipment, it could definitely become a positive factor as the year progresses. There are two main points to consider. First, the truckload market is showing signs of improvement, leading to a shift from LTL to truckload services, which will contribute positively. Second, we have noticed early signs of growth in the manufacturing sector over the past month, which could serve as an additional advantage. Furthermore, we are witnessing ongoing strengthening in our core business. We anticipate this trend to continue as we move through the quarter into May and June, taking into account both seasonal patterns and the opportunities available to us.

Your next question is from the line of Ken Hoexter with Bank of America.

And Dave, obviously, great working with you over these 26 years and good luck into retirement. It's been a joy working with you, Judy, it's truly a great teammate. I guess my question...

Thank you.

The April data seems like it's accelerating to the downside on tons per day and yet maybe even an easier comp, if I look at last year, April versus March and yet we're decelerating on tons per day decelerating on shipments per day. Maybe talk a little bit about the economic backdrop here and kind of what we're seeing in terms of the core.

Yes. So Ken, it's Matt again. I say for April, we did see a little bit of a deceleration versus March. But again, we've done some deep dives into our customers really on a customer-by-customer basis, just looking at what the expectations are over the next couple of months, what their trends have been in the past, and particularly some new customers that have been brought on and we've added to our core mix there. And so I would say, as we look forward in the quarter into May and into June, we do expect to see some significant increase on that front on the core business side as well as, I would say, just continued acceleration on our operational efficiency metrics. I mean if we look at our load efficiency metrics, our other productivity metrics, those continue to improve in April, and we expect those to continue to improve as we move through the quarter.

I guess I'm a little confused by the strengthening in core business commentary, but you deteriorate. I just want to understand the backdrop, is the economy getting up? Or is it just a transaction versus a mix issue?

The core business remains in a very strong position, especially when comparing year-over-year figures. However, on an absolute basis, we noticed a slight decline in the early part of April. Still, we anticipate that this will reverse, leading to an increase in core business as the quarter progresses. The perspective you take determines your interpretation of these numbers.

Got it. And then my just follow-up is... Go ahead, sorry.

I just wanted to add a couple of points. The presentation we shared illustrates this well. We've maintained relative consistency in our core shipment growth, which is beneficial. One important aspect Matt referred to is the pipeline of opportunities we have with our customers. We have good visibility into this and several promising opportunities in less-than-truckload as well as in truckload and managed services, thanks to the efforts of our sales team. Another important takeaway not mentioned in this Q&A segment is that conducting business with our regular customers is more predictable, which supports better labor planning and enhances our productivity. This ultimately leads to improved service for our customers. We have been focusing on this since about the third quarter of last year. Additionally, Seth highlighted various efficiency gains in his prepared comments that we anticipate will further strengthen our strategy moving forward.

David is going to cut me off. I know he's going to get upset, so I'll sneak a quick one in. A lot of innovative tech investments that keep going on. Judy, I just want to understand why is that not part of your annual regular tech spending and CapEx, OpEx, they're ongoing. They're consistent and then you take a big write-off like the investment. But if their consistent spends and hope for improvement long term, why is it not kind of part of your regular cost?

One main reason is that the customers we are working with are in the pilot stage. We are exploring various use cases, and due to the lengthy sales cycle involved in our process with each customer, there is no consistency regarding the revenue stream or the costs being incurred. We anticipate that these costs and the corresponding revenue will eventually transition into regular operations. The distinction we are highlighting is due to the pilot nature of our projects. Currently, we have over ten active pilots, with even more under contract review and scoping. It's an exciting time, especially with initiatives like Box Smart Autonomy and the freight movement system that involve major Fortune 50 and Fortune 500 companies. However, we are not at the stage of regular operations yet, which is when we will include these in our regular earnings.

Your next question is from the line of Daniel Imbro with Stephens.

Yes. David, congratulations on your retirement. Maybe starting on the EPS side...

Thanks, Imbro.

You mentioned in the release and the comments sequential move into the last few years, 200 to 300 million points. I think that includes COVID though some pretty weird, great years. I think pre-COVID it was closer to 500 basis points. I guess what are the puts and takes as you guys think about the sequential OR movement here between this year and maybe that pre-COVID normal time if we use that as a beta.

Yes, Daniel, it's Matt. Good question. It's important to consider the historical context. If you look back at previous periods where we experienced a significant increase from the first quarter to the second quarter, it was certainly against a higher operating ratio level. However, if you analyze the last three to four years, you would find that the operating ratio we observed in the first quarter of this year is more in line with that context. That's why we provided that recent historical perspective.

Okay. That's helpful. And then on the asset line side, just to follow up on that one. Obviously, a challenge is bouncing on the bottom of the cycle, but I think you mentioned that I actually had a slight non-GAAP profit in March. Just curious how we think about the profit outlook on that side? Is there more you can do from a cost standpoint or operational standpoint to improve that profitability before the cycle starts?

Daniel, this is Steven. We are continually working on improvements in that area. In the first quarter, we experienced a notable increase in productivity measured by shipments per employee per day. We also have a technology roadmap and other process enhancements in place, so we will keep focusing on improvements there. This is a key priority for us, along with the potential for growth. Increasing growth in that segment is crucial, as it resolves many issues, but we still see additional opportunities to enhance productivity.

Any insights on the potential opportunity to let this unfold or what may be unclear?

I'm sorry, can you repeat...

Yes. Repeat it.

Just any way to help size up what's left on the self-help or kind of the opportunity to make that business more optimized before the cycle turns, either cost take out or kind of what you see from a profitability standpoint that you can control before the cycle improves?

Yes. I mean I don't have a specific number to provide. I would think of it more as incremental improvement. If you look at what we did in the first quarter, we had a 27% improvement in productivity when you measure it by shipments per employee per day. So we've made good strides there. It's a continued area of focus, and we'll look to continue to improve, but I will think of it as more incremental improvement.

Your next question is from the line of Brian Ossenbeck with JPMorgan.

David has been great to work with you even over a shorter period of time than most folks. But I really appreciate it and good luck in everything.

I'm sorry, I can't provide a response to that.

Just wanted to start off with a quick clarification, maybe for Matt, like the 200 to 300 basis points you're talking about here, is that the actual guide? Or is that just the benchmark and we'll kind of see where it goes? Like maybe you can give a little more context in terms of like how we should look at that and then also maybe about the third quarter as well as we're trying to figure out what sort of normal seasonality and put some of these benchmarks to start off here.

Yes. So I mean, I would say that's more of just some historical context. And like I said, it's probably historical context. It's a little bit more relevant than maybe the historical changes that we saw 5 or more years ago. And so I wouldn't look at it as a specific guide. But like I said, we've done a deep dive into our revenue mix and our customer trends. And so we feel good about the acceleration that we expect to see as we move through the quarter. We also, like Seth talked about, continue to advance some significant operational efficiency and productivity efforts on the ABF side. Some of those, like the Kansas City, the opening of the new facility in the Kansas City area, which we've seen some significant improvement in productivity on that happened towards the end of the quarter. So we expect to see a full quarter benefit there. I mean as you look forward as we move through the year. I mean you've got to think a little bit about just some of the events that have transpired, particularly over the last year with the yellow related impact as you move from the second quarter to the third quarter. I think we still expect acceleration on both of those areas that I talked about, both on the core business level and on the efficiency and productivity level. And as we get closer to the third quarter, we'll provide some more details just on the historical context and what we're seeing.

Okay. But it sounds like a similar historical context might be a good enough starting point for the third quarter? Or is it going to get a little different because you have all these moving pieces on the core business and the transactional starting to lap out the comp at that point?

I mean I guess I'd just say that the third quarter of last year was just a little bit of an outlier just given everything that was going on in the market then. And so we saw about a 400 basis point improvement from the second quarter to the third quarter of last year. Now we've had the benefit of the capacity coming out of the market and as well continued progress on the operational efficiency side. But a lot of those measures went into effect as we were moving through the third quarter of last year. We saw the impacts there.

Your next question is from the line of Tom Wadewitz with UBS.

And David, I also want to add my congratulations to you. You've been doing a great job for a long time and wish you the best in retirement.

Thanks a lot, Tom.

Let's see. I have two questions to ask. First, regarding the sequential data, I know you've touched on it a bit. If we look at the total tons per day in May and June, seasonality suggests that we should see some improvement. Additionally, for revenue per shipment, we would expect normal seasonal trends to show an improvement compared to what you observed in April. Is that accurate? I believe your previous comments focused on year-over-year comparisons when discussing May and June, but I'm trying to clarify what those absolute numbers might look like in relation to typical seasonality. Or are they just unchanged compared to April?

Tom, this is Christopher. I think you're right. From an absolute basis, we would expect historically speaking, versus second quarter, there would be an uptick in demand from a both tonnage perspective and a revenue per day perspective as customers are shipping more as their business picks up. We did not see that. I think we've discussed that a few times last year just due to just being in a freight recession that we've been talking about ongoing for the last many months. So our expectation is that we would see a sequential seasonal uptick from first to second, as you're describing, that would be different from last year.

Okay. And so you would see that seasonal uptick May and June versus April?

Typically speaking, yes.

Okay. And you're thinking you expect that to be the case this year as well?

Yes. I mean, historically speaking, that's true, just talking to our customers, there's kind of a mixed bag. Customers are saying demand is still soft for them. You do have pockets of customers that have a stronger demand than others. But again, just going back to historically speaking, that has been true.

Your next question is from the line of Judy McReynolds with Jefferies.

Well, it's interesting from where we sit because of how we go to market as a logistics company because what we are positioned to be able to do is to say yes to customers. And what that really does for us is it puts us in a position where if the customer is more value-based and service-oriented, we perhaps have one answer. It could be a good opportunity to flow through the ABF network or if it's a customer that has more price sensitivity and different challenges in their own business. I mean that's a customer that we potentially could do well with in our managed solution or in our LTL brokerage solution where we access capacity with other LTL providers that perhaps have a different price point than we would at ABF. And so we're really positioned well to benefit and navigate our way through any of these situations or challenges, which that's what we've been positioning for a decade here. And it really does make sense. I mean right now, what customers would tell you is that their priorities are supply chain reliability and cost efficiency. And so as we are interacting with them, we're trying to determine the best solution for them and to fulfill that through the options and the opportunities we have, whether it's our own assets or third-party assets. So I think to answer your question more specifically, on the pricing, that is involved in the value discussion or the priorities discussion for that customer. So it can be a variety of answers but one that we can capture and do well with if the customer is going to be a customer of regularity or value-based or that we can get a sense for how we can do well to fulfill their needs operationally.

I think you're talking about customer behavior, but what about how competitors are behaving?

Well, I mean, again, competitor behavior, if it's a customer that we're doing our managed solution with, for instance, the competitor behavior would be embedded in the answer that we get when we place the LTL shipment in their network. So we stand to be in a position to really serve customers well, depending on what their needs are and which places they land in our organization. But what I'll say about our pricing and our philosophy related to what we run typically through the ABF network is we're very price disciplined. We're very value-based. We offer a high level of service, and it's a part of what works well in that network, and we stay consistent with that, and we have for decades. But we are, I think, understanding more about what the market is providing or giving us as we work through these different answers with managed and LTL brokerage as well.

Okay. Your next question is from the line of Stephanie Moore with Jefferies.

I just want to echo what everyone has been saying. David, congratulations. We will all miss you, but this recognition is very well deserved.

Thanks a lot, Stephanie.

Maybe going back to a prior question about disservice here. I appreciate the on-time performance and other metrics you provided in the presentation today. If we consider what many of us perceive from a third-party service provider, it appears there was some improvement in 2023. Clearly, this year was unusual for the LTL environment in general. Could you comment on what you believe contributed to this movement, which seems to be a bit lower than in the past, and discuss any areas that might be assessed in that survey, particularly in light of the positive aspects as well? Any additional insights would be helpful.

Stephanie, it's Dennis. Certainly, I understand the movement that you're talking about kind of in the third-party a few things. And last year certainly was not the result that we would have hoped for externally from that perspective. But when we look at what's going on to improve the service levels. I mean, Seth has talked about this morning, just the investment that's going into the network, the work that's going on from a service quality and compliance perspective, it's a significant gain that we see there in that asset-based network in terms of service, especially since those survey results from last year. And so if we're working on those optimization projects we talked about in that asset-based network, certainly, customer communication enhancements. I mean, we rolled out at the beginning of this year, more visibility for our customers online, so them being able to see free pickup for instance, what's going on with their shipments. So the visibility is one of those things. So we take that customer feedback and we turn that into what we needed to go improve. And so we've been working on the things that we've been hearing from customers to improve that service. And so we're confident in what we're seeing in some of these awards and then just the on-time performance that you mentioned. And certainly, there's a slide in our deck from today that just talks about some of that feedback that we've received some of the initiatives we've been working on to improve that service as well.

Got it. No, that's helpful. As a follow-up, I think we're very focused on the short term, especially given the tougher freight environment than we anticipated. I would like to hear your thoughts on how you are positioned when this freight cycle eventually turns. You've discussed capacity investments and expansion, which I believe puts you in a good position. Could you elaborate on aspects like labor and equipment, and how you feel about your readiness to respond once freight starts moving in our favor?

Yes. Stephanie, this is Seth. I feel like from a labor standpoint, we're positioned really well. We're able to flex our labor up and down with some of those tools we invested in, and we have good visibility in what we even need 6 months from now based off the demand with those predictive analytics tools that we've invested in. So I feel good from a labor standpoint with the new contract, our starting wage is in a better spot, more market competitive, and we just see a lower turnover rate with our employees. As I look at just industry stats, we have some of the leading industry stats on turnover. So we have experienced people who know our customer's freight. So feel good from a labor standpoint. Our equipment, we've continued to invest in the fleet. In my opening comments, I said we had one of the newest fleets on the road. We have more equipment coming on. That's starting to be delivered as we speak. So we feel like we're pretty good there. We can hold on to some of the older stuff if we see demand come on or we can optimize and get rid of those high-cost units, and we've been doing a good balance as we move through this year. And then really, from real estate, we've been executing on that long-term plan since 2021. We've added capacity in strategic markets where we see growth or productivity improvements. And we're also seeing service improvements in the OTA example. So I feel like we're positioned well across the board. And really, when I think about capacity of all the things I just mentioned, it also comes down to efficiency. And you saw in our actual presentation, we're seeing some of the best efficiency numbers in 3 years because of our investments. So we feel pretty good; the more efficient you are, the more capacity you have for growth.

Your next question is from the line of Jeff Kauffman with Vertical Research Partners.

David, wishing you all the best in retirement. I may have to sneak down there and make sure Amy understands Calico County would be...

We can do that.

Well, you are one of the best. I will miss working with you. So congratulations.

I'd like to turn to the expense side, and I'd like to focus a little bit on labor costs. On a year-on-year basis, it was only up 3%. But if I look at it as a percent of revenue, it's up almost 400 basis points. If I look at it on a per pound basis, it's up almost 25%. I know some of that's tonnage being down the way it is. Can you help us understand the labor cost increase, how much of that was increase in cost per person versus maybe employment change and productivity? And then as we turn the page on the first year of the new contract, how does that labor cost inflation in year 1 compare to year 2?

Yes, I'll answer that question, Jeff. This is Seth. So when you look at our contract in year 1, we had about a 13% increase in wages on year 1 and then 7% increase in HWP cost. As we lap that and get into July, our wages will go up about 2.5% and then HWP will be in August at about 2.9%. So we get to a lot more normalized rates, not just for the second year, but also every year moving forward, we had to get over that first year headwind. So we did a lot of productivity things like reducing some of our external resources like cartage, PT, rail, rentals, things like that. So the cost increase that we dealt with in the first quarter was about $29 million from the contract, and we were able to pretty much wipe that out with the efficiency improvements that we saw. So we're going to continue to do that. What you saw in the third quarter, fourth quarter, and now first, you'll see that continue throughout the year. And we have a lot of optimization projects in our pipeline. So we feel like just a lot of things in pilot right now, like city route optimization, in the next 2 phases and then rolling out the different doc software and labor tools. We feel like we're going to continue to optimize our cost structure while being positioned for future growth.

So to take 10 steps back if your renewal rate on contracts is about 5%, 5.5%. And I'm not trying to balance this transactional versus contract mix issue here. And your labor costs go from consuming 600 basis points of revenue to 100 basis points of revenue, we should see a pretty meaningful margin flow-through to the LTL business would be the idea, correct?

Yes.

I say those are the same trends...

I'm not a math expert, but I'm trying to understand the numbers. Congratulations on the results. I know there are many factors at play, making it difficult to get a clear picture. However, the LTL results appear to be very positive. David, I wish you the best.

Your next question is from the line of Bruce Chan with Stifel.

This is Andrew filling in for Bruce. We also want to extend our congratulations to you, Dave. I just wanted to share some thoughts.

Thank you.

We are in a situation where the number three player has left the market. We believe manufacturing is at least stable and recovering, and consumer demand appears to be holding steady. However, we are puzzled by the ongoing decline in volume despite what should be easier comparisons from last year in the first and second quarters. What strategies do you have in place to increase volume in the network?

Well, I'll take a shot at that. But I mean I feel like that the move on the manufacturing PMI, which is an indicator for us, was modest after 16 months of decline. And what we've seen over time is that when that moves, it's typically 4 to 6 months before we see the impact of it. So that's one piece of information. And then the other that I would consider is just the state of excess capacity on the full load side. I mean I think that, that's had an impact on the heavier LTL shipments. And we don't know to what degree, but we do have examples that we've handled ourselves in our managed group where we've done some mode shifting for the benefit of the customer's cost efficiency. So I think those are 2 factors that are at issue here whenever you're looking at weight per shipment levels and perhaps thinking about it going forward.

Yes. I would say that the year-over-year comparisons are significantly influenced by our focus on optimizing our mix to achieve better productivity and profit outcomes.

Your next question is a follow-up from the line of Jason Seidl with TD Cowen.

I wanted to follow up a little bit because we're getting some questions on sort of truckload and maybe that business stealing some LTL freight. Now one of your competitors said they don't think it's that much. But I did speak to a TMS provider saying that they are seeing LTL consolidation pickup. I was wondering if you're seeing some of that in your business? And how much do you think truckload is stealing away? And maybe how much of yellow's freight went over to the truckload sector? And then also, once we do get that eventual recovery in the truckload marketplace, do you think that just pricing is going to fix that at will flow back to the sort of natural owners of that LTL freight?

Yes. This is Steven. One thing we are noticing is a shift similar to what you're describing. It's hard to quantify, but from an anecdotal standpoint, we are finding opportunities to optimize for our customers, largely due to the pricing dynamics in the truckload sector. There are various lanes and models that allow customer supply chains to enhance efficiency by reallocating a portion of their freight to truckload. We've observed this happening, although it's hard to gauge its full extent. Historically, as truckload capacity tightens, some shipments typically revert to LTL, and we expect to see that trend continue. The positive aspect for us is that we are well-positioned to take advantage of these changes. When we engage with our customers, we have all these factors in consideration, enabling us to respond positively in a way that is truly advantageous for us. We really appreciate this position. Like others, we look forward to achieving a better balance in the market, along with an increase in demand, which we believe will benefit us.

So just to summarize, you've seen a little, but you don't think it's significant.

Yes. I mean I wouldn't say it's significant, but we have seen it. But again, I'll just reiterate, it is difficult to tell how much of that's going on.

Dennis, we've got one more follow-up. We'll try to get one in real quick, and then we'll cut it off after that.

Your next question is from the line of Ken Hoexter with Bank of America.

Dave, just some clarifications. I've been getting some questions in. They want to understand is the core picking up in April. Was that the commentary? Or is it still down on the tonnage, it's just kind of the mix is improved. I just want to understand the commentary on the core.

Yes. Ken, it's Matt. We provided some commentary on the April trends in core in the 8-K. We saw a 13% increase in shipments for the quarter in April, and on a tonnage basis, there was a 9% increase. So we are definitely continuing to see growth there.

Okay. Yes, I just wanted to clarify that. And then the renewals were up 5.3% versus 5.6% last quarter. I just want to understand, Judy, does that mean we're seeing kind of a decelerating pricing environment? Or is there anything commentary you want to give on what we're seeing on the pricing side?

I wouldn't say so. I mean I think you know it's just a representative figure related to the renewals that we did for a given quarter. And so the mix of customers that's involved with that could drive that answer. But 5.3 is still solid, and we're comfortable with that.

And then just on the core, going back to that for a second, is there a sequential commentary as well? I know you just gave the year-over-year, but anything sequential on the quarter, March to April?

In the first quarter, core shipments increased by 12%, and in April, they were up 13%. So it's pretty consistent, I would say.

Okay. So consistent from March to April, on the core?

Yes, I'm looking at a Q1 number, but I imagine it is in the low teens. I think it's been in that range for the last few months, up in the low teens.

Listen, I appreciate everyone joining us today, and that concludes our call. Thank you.

This does conclude the ArcBest First Quarter 2024 Earnings Conference Call. Thank you for joining. You may now disconnect.