Good morning and welcome to the ARCFEST Third Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question-and-answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Amy Mettenhall, Vice President, Treasury and Investor Relations. Thank you. Please go ahead.

Good morning. I'm here today with Judy McReynolds, Chairman and CEO, Seth Runzer, President, and Matt Beasley, Chief Financial Officer. We also have other members of our executive leadership team available for the Q&A session. Before we begin, please note that some of the comments we'll make today will be forward-looking statements. These statements are subject to uncertainties and risks, which are detailed in the forward-looking section of our earnings release and SEC filings. To provide meaningful comparisons, we will discuss certain non-GAAP financial measures during this call. These measures are outlined and described in the tables of our earnings release. Reconciliations of GAAP measures to non-GAAP measures discussed in this call are also provided in the additional information section of the presentation slide. You can access the conference call slide deck on our website at ARCB.com, in our 8K filed earlier this morning, or follow along on the webcast. And now I will turn the call over to Judy.

Thank you, Amy, and good morning, everyone. We remain steadfast in our commitment to our strategic pillars of growth, efficiency, and innovation, and continue to invest in our people, solutions, and technologies as we position our best to capitalize on today's opportunities and those that arise as the freight cycle improves. Our people are at the heart of our success. Providing them with the right tools, training, and support, we enhance their ability to deliver exceptional value to our customers and shareholders. This year, our investments in training have not only enabled our workforce to succeed, but we have also seen savings, significant cost savings. For example, the operations experts deployed to our largest AVF facilities have already saved us $7 million this year, with more savings anticipated as we expand these efforts into 2025. It's crucial that we have the right people in the right roles, and investments in our leadership team and employees guarantee a deep finish of talent for the future. Last year, excuse me, last quarter, we promoted Seth to president of ArtFest and Matt Godfrey to ABF president. Recently, we announced that upon Michael New City's retirement, Dennis Anderson will succeed him as chief strategy and innovation officer. Dennis is a forward-thinking leader with a deep understanding of our customers' and employees' He has been instrumental in driving significant improvements to our digital tools, contributing to our number one Mascio ranking for the most useful website. And speaking of Mascio, we are proud to receive external recognition for our hard work in the 2024 survey results where ADF exceeded the industry benchmark standard for service and ranked number one or number two in half of the categories surveyed. These rankings affirm our status as a premium provider that customers trust and rely on. I am proud of how we listen and collaborate across our organization to be responsive to our customers' needs. As we navigate a dynamic landscape, our commitment to delivering shareholder value remains unwavering. Each and every day, we make decisions to enhance our capabilities and drive sustainable growth. And now I'll turn it over to Seth, and Seth will discuss some of the key initiatives that are propelling us forward.

Thanks, Judy, and good morning, everyone. As I step into my new role, I've had the pleasure of meeting with teams across the organization to identify ways to unlock additional value and drive efficiency. I'm inspired by our employees' engagement and dedication to our customers and our company. We remain committed to managing what's within our control, delivering industry-leading service, and operating our business efficiently. Despite the challenging macro environment, I am confident in our ability to grow and deliver on our strategic priorities. My confidence stems from our strong customer relationships, ongoing service improvements, and progress on facility expansions and investments in innovation. Our high customer retention underscores the effectiveness of our relationships and satisfaction of our customers. In addition, we have a strong pipeline that represents substantial opportunity for top-line growth. We carefully evaluate each opportunity to ensure we create value for our customers while producing the returns that our shareholders expect. Our managed transportation solution is leading the way with double-digit shipment growth. This solution helps customers optimize their supply chains, and it's clear that efficiency-driving solutions are more valued than ever. I'm encouraged to see the demand is growing and the customer agreements we are securing now are more than five times larger on average than those from five years ago. Our revamped onboarding process is improving customer attention and lowering our cost to serve. As more customers opt for managed solutions, we grow both our top line and bottom lines. As we've mentioned before, ABF's LTL on-time service is the best it has been in five years. We have made significant improvements to shipment visibility with approximately 30% better accuracy on our ETA calculations, reducing customer inquiries by 19%. As Judy commented on already, our focus on continuous improvement and serving our customers with excellence is reflected in the recent recognition by Mastio. Superior service drives future growth and a win-win outcome on pricing. While I'm proud of the progress we've made, we are not sitting still. We have more work to do. We are progressing on our long-term ABF facility roadmap and strategically adding capacity. We opened three newly remodeled facilities from the yellow auction, which added nearly 80 doors and replaced current locations. We are wrapping up the addition of 66 doors in Chicago, and in early 2025, we plan to complete a facility expansion in San Bernardino, California, which will add another 40 doors of capacity in a growth market. These updated facilities and door additions will enable us to handle more freight with improved productivity and better service. In addition to our facility expansion, we are investing in equipment and technology to further improve our results. New equipment investments ensure our fleet remains one of the youngest and most efficient in the industry. In the third quarter of 2024, our repairs and maintenance costs were $5 million lower than last year's third quarter. A modern fleet reduces our total cost of ownership and underscores our dedication to operational excellence and long-term sustainability. New dock management software provides employee-level visibility into productivity. Having this tool in the hands of our frontline managers enables quicker action and provides consistency in our processes and service. We have also developed advanced labor planning tools which will enable us to forecast labor needs more accurately, ensuring we have the right people in the right places at the right times, driving productivity, and supporting our growth objectives. You've heard us discuss our city route optimization project at ABF before, and we are expanding into the next two phases, which will use AI to predict daily demand and optimize our pickup routes. These have been in pilot for three months with the rollout plans to begin in the fourth quarter. For our truckload solution, we have developed a self-serve carrier portal with features like lane matching and auto offer negotiation, which is resonating with our truckload carriers. We are already seeing a 13% adoption rate, which is ahead of our original targets, and we should grow as more features are added. I'm pleased that we are wrapping up the implementation of Triumph Pay, a third-party solution for carrier payments and invoice auditing. This technology will reduce manual tasks and fraud, improve our carrier partner experience, and allow for scalable growth. These investments in facilities, technology, equipment, and innovation are contributing to a year-over-year productivity improvement of 20% for asset light and 6% for asset-based. Our company has evolved tremendously over the past several years, and as you can see, we are intelligently investing for the future to benefit our customers and shareholders. I'll now turn it over to Matt to go through the financials in greater detail.

Thank you, Seth, and good morning, everyone. The third quarter presented another period of softer demand for our industry. The truckload market continues to face challenges, and we are comparing to a strong third quarter in 2023 for our asset-based segment, which saw higher business levels as we help customers navigate market disruptions. Consolidated revenue decreased by 6% from last year's third quarter to $1.1 billion. Non-GAAP operating income from continuing operations was $55 million, compared to $75 million in the prior year. Our asset-based segment saw a $19 million decrease in non-GAAP operating income, while the asset-like segment's non-GAAP operating loss of $4 million was unchanged. Adjusted earnings per share were $1.64, down from $2.31 in the third quarter of 2023. Now, let's discuss our two segments in more detail. Starting with our asset-based business, second quarter revenue was $710 million, a per-day decrease of 6%. ABF's non-GAAP operating ratio was 91%, an increase of 220 basis points year-over-year and 120 basis points sequentially. Our August 8K highlighted expected sequential operating ratio performance of flat to a 50 basis point increase. September wait per shipment was lower than expected and was the largest contributor to the higher-than-expected operating ratio. In addition, higher insurance costs added 40 basis points to the operating ratio sequentially. In the third quarter, daily shipments saw a slight decline of less than 1% on a year-over-year basis. However, weight per shipment decreased by 11%, resulting in an 11% decrease in tons per day compared to the previous year. This decline is primarily due to broad industrial weakness, as customers are producing less in the current economic environment. Additionally, higher interest rates and low housing inventory have led to fewer household goods moves, which typically involve heavier shipments. Some higher-weight LTL shipments have also shifted to the truckload market, with its continued low rates and excess capacity. It's also worth noting that some of our shipments related to Yellow's bankruptcy in the third quarter of 2023 were project-related, while others shifted to other providers over the past year. Revenue per hundredweight increased by 7% in the third quarter. On September 9th, we implemented a 5.9% general rate increase, and we secured an average increase of 4.6% on our contract renewals and deferred pricing agreements during the quarter. Price improvements were partially offset by declining fuel costs. Excluding fuel surcharges, revenue per hundredweight increased in the high single digits year-over-year. The pricing environment remains rational, and we are focused on using pricing and operational efficiency improvements to outpace rising costs and enhance our margins. Changes in the wage rate under our union contract took effect on July 1st, and benefits increased August 1st for a combined increase of approximately 2.7%. This equates to approximately $8 million in additional costs for the third quarter. Despite lower tonnage levels, the volume of shipments remained relatively stable, which meant that labor costs didn't scale proportionally to tonnage declines. However, improved productivity through technology and training helped mitigate increased contract costs while maintaining high service standards. Costs for fuel, repairs, and purchase transportation were all lower on a year-over-year basis, but insurance costs increased by $6 million, adding 100 basis points to our operating ratio year-over-year. On page 15 of our slide deck, you'll see that our 12-month non-GAAP operating ratio stands at 90.1%. This marks a 780 basis point improvement since 2016, highlighting the success of our strategic initiatives. In October 2024, ArtVest's asset-based segment experienced lower shipment and tonnage levels compared to the same period last year. This decrease is primarily attributed to the exceptionally strong performance in October 2023, which was driven by additional business at higher prices following a cyber attack on a competitor that tightened capacity. As we served our customers during this market disruption in October of last year, we achieved an 8.1% year-over-year increase in build revenue per hundredweight. This October, our results were impacted by weak industrial production, disruptions from hurricanes, and a port strike. Despite these challenges, pricing remains rational. The decrease in revenue per hundredweight is also influenced by lower fuel prices. Excluding fuel surcharges, revenue per hundredweight remained flat year-over-year. From September to October, tonnage per day remained flat. We expect the year-over-year decrease in revenue that we saw in October to moderate throughout the rest of the quarter, resulting in a total expected year-over-year decrease in revenue per day for the quarter in the mid-single digits. Historically, the average sequential change in the asset-based operating ratio from the third quarter to the fourth quarter has ranged from a 100 basis point to a 200 basis point increase. With continued softness in the manufacturing environment in truckload markets, we currently expect to be on the high end of the historical range. Moving on to the asset life segment. Third quarter revenue was $385 million, a daily decrease of 10% year-over-year. Shipments per day were down less than 1%, and revenue per shipment decreased by 9% due to the soft freight market and growth in our managed business, which has smaller shipment sizes and lower revenue per shipment levels. Our maintenance solutions set a record in September for both volumes and margins as we onboarded new customers and grew with existing accounts. We maintain our focus on reducing operating expenses and improved employee productivity. However, the non-GAAP operating loss of $4 million shows that our business continues to be impacted by current market conditions. Our MOLO acquisition contained an earn-out feature based on EBITDA targets through 2025. Due to current market conditions, the estimated contingent consideration liability for the earn-out was reduced by $92 million in the third quarter. This is reflected as a reduction to expense in our GAAP operating income results, but has been excluded from non-GAAP results to better represent normal operations. In October, we saw a 3% year-over-year decline in shipments per day and a 10% decrease in revenue per shipment. Sequentially, from September to October, shipments per day decreased by 6%, and revenue per shipment rose by 4% as we implemented strategic pricing adjustments. Given the current market conditions, we anticipate a non-GAAP operating loss between $5 million and $7 million for the fourth quarter. Our asset-light offerings play an important role in our overall strategy as customers seek long-term logistics partners for all their transportation needs. We continue to reduce costs and better align resources to match business levels. We are maintaining our pricing discipline and strategically reducing less profitable freight when appropriate. These initiatives are a top priority as we focus on returning the asset-like segment to profitability. Turning to capital allocation, year-to-date through September, we return $65 million to shareholders through share buybacks and dividends. We ended the third quarter with a net cash position and roughly $500 million in available liquidity. The capital expenditure estimate for the year has been revised downward to approximately $300 million, primarily due to lower expected spending on real estate. Our strong financial position in strategic investments and technology has significantly enhanced our operational efficiencies. We plan to build on this success as we continue to innovate and position ourselves for sustained growth. I'll now hand it back to Judy.

Thank you, Matt. Our team continues to show incredible resilience and adaptability. Their hard work and dedication have been pivotal in driving significant improvement. I want to extend my heartfelt thanks to our customers, employees, and shareholders for their continued support and trust. We are committed to building on this momentum and delivering even greater value in the future. That concludes our prepared remarks, and I'll turn it over to the operators for questions.

As a reminder to ask a question, please press star, followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and rejoin the queue for any additional questions. Thank you. Our first question comes from Jason Seidel from TD Cowan. Please go ahead. Your line is open.

Thank you, Operator, and thanks for taking the question, Judy and team. Question, you talked about a rational pricing environment, and it seems like you're still We're doing pretty well about getting that 4.6%. Has it trended lower throughout the quarter? Has it trended higher? Has it sort of stayed that same, that 4.6%? Can you just give us something?

Hey, Jason. This is Christopher. I would say there wasn't necessarily a trend up or down. It was pretty consistent by month throughout the quarter. And I know we already talked about it. We took a 5.9% general rate increase on September 9th. Had really good retention of that customer base that impacts around 20% of our revenue. So good results there. The 4.6 percent in the third quarter, really pleased with that result. I think year-to-date, we're right at about a 5 percent, which at that rate, we're outpacing just the inflationary costs that we're experiencing in the business. So really just continue to work on that, making sure that our price is in a good place for the value that we're providing our customers.

Now, that makes sense. And you said you had really good retention. Would you describe the retention as normal?

I think we've seen some positive trends in retention with our customers. You know, our customers are challenged just with the environment that they're in. But we're able to position ourselves as a logistics company to serve them and to improve their efficiency. You know, with our managed business, we see really strong customer retention there as we're able to serve them, not just through our asset-based solution, but also through other solutions as well to help them optimize their supply chains.

At the time, that was my one.

Sure. Thank you.

Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

All right. Thanks. Good morning. Great to see the traction in MassTO, but the question is, is some of the service improvement probably kind of how long does it take to get recognition for your service improvement, both in the form of pricing?

Yeah. Good morning, Ravi. This is Matt Godfrey. Yeah, and I appreciate you calling out the success we've seen around the MassTO And when we think about that success, it really speaks to that high level of execution by our teams in the field and our DSY employees to serve our customers with a high level of excellence. And it also speaks to our teams here as we listen to our customers and understand our customer needs, spending time on the right initiatives and investments to give our leaders in the field the right tools to serve our customers well and reduce our cost. So not only have we increased our efficiency, we've seen continued improvements in our productivity. So when you think about that and where we fell on the Mastio falling on that fair value line, I think it really speaks to that we've been able to increase the service level to our customers and do it efficiently so that we're keeping our costs in line. So I expect those trends to continue as we move forward because what excites me the most is while we've rolled out a lot of initiatives aimed at our service and productivity levels, we have a lot still to do. Seth mentioned what we're rolling out additional phases of our city route optimization here as we get into the fourth quarter. And we have several initiatives in 2025 that will continue to impact our results positively. Great.

Thank you.

Our next question comes from Jordan Alliger from Goldman Sachs. Please go ahead. Your line is open.

Yeah. Hi, morning. So I think you indicated revenue per day will get less negative as we move through the quarter and settle in it down mid-single digits. Well, is this more volume driven? Is it yield driven? And what does it imply as we move through the balance of the quarter from a volume perspective? Thanks.

Sure. Yeah. So Jordan, thanks for the question. This is Matt. So it really is the impacts, and we highlighted that a little bit, but certainly we did see, you know, just in October of last year, an increase in volumes and an increase in pricing that was, you know, somewhat contained in October as we serve customers through the cyber attack that happened on a competitor last year. And so I would say it's in all of those categories that you mentioned. So certainly overall, you know, when we're looking at revenue per day, we do expect that to moderate and improve as we move into November and December. And I would say, you know, in some of the other, at least on a year-over-year basis, the comps get easier really across the board. So both on a pricing and a volume perspective, you know, we expect both of those tasks to improve as we move through November and December.

Thank you.

Our next question comes from Daniel Imbrow from Stevens. Please go ahead. Your line is open.

Good morning, guys. Thanks for getting our questions. And maybe we can unpack the ABF results a little bit more of the big credit. I think you talked about it in your prepared remarks. But the mid-quarter, you expected OR kind of flat, though, 50 basis points. It came in 120 basis points sequentially. You mentioned September wait for shipment, I guess, is the biggest driver. So can we unpack maybe that wait for shipment move lower? What is driving that big of a step down? Obviously, it was more than you expected. And when do you think we started to see that stabilize? What are you hearing out there? Yeah, when would you expect it to stabilize, I guess, as we look forward on weight persimmon.

Hey, good morning, Daniel. This is Christopher. And so that weight persimmon difference that we're seeing from a year-over-year standpoint, it's related to a couple things that we commented on. One was just the truckload environment. You know, just as that continues to be suppressed, the prices are low in that area. You do see just some LTL business that historically is LTL and it's moving on truckload. The other thing that we're just seeing in our managed business that we're able to help optimize our customer supply chain by bundling some LTL shipments into truckload. And so there's some mode optimization going on in the network or in really in the industry. I think, you know, as the market turns, you could see some of that business transition back from truckload to LTL. That's one area, and I know that we commented earlier on in the script, just that the household goods moving business, just that's not as strong as it historically has been given just the higher interest rates. So homeowner mobility isn't as strong as we've historically seen, and that business tends to be heavier weight per shipment as well. So those are two kind of key areas that are pushing our weight per shipment lower than what we would historically see there.

Yeah, and Daniel, this is Matt. I would just say it also is just kind of just a difference versus our expectations, particularly for September when we were calibrating that mid-quarter update. And so we were just expecting to see a little bit of improvement in weight per shipment, just some likely discussion.

Our next question comes from Ken Hexter from Bank of America. Please go ahead. Your line is open.

Hey, great. I guess sticking on that weight precip, I don't know if this is for Seth or Judy, but it seems like a larger decline versus peers or just at a kind of run rate now, a much lower level than you've historically done. I think you used to run around 1,200, 1,300 pounds. Is that just economic? Is there something changing in the mix? And then we didn't really hear much about the mix of transactional versus core this quarter. Can you describe what's going on within the network now and kind of where does that stand?

Yeah, so, hey, this is Seth. So when we look at, you know, wait for shipment, what's going on, really what we were trying to highlight with revenue and wait for shipment in our 8K is October is unusually from a comp standpoint. We think that's going to normalize on the front side. So as we move through the rest of the quarter. But really, where we're focused right now is on revenue growth, both across the business, but at LTL specifically, to your question. And we've seen our pipeline increase pretty decently. But what we're focused on in the pipeline is making sure that those opportunities are profitable for our business. Our retention rates have been in a really good spot. And growth really comes down to that service you provide your customers. And we were happy to see the results there on the NASDAO side. Our claims numbers continue to be in a good spot. So we think we're bringing value to our customers. The second piece is the more efficient we are, the better our service is to our customers, obviously. And we feel like that also impacts the price we deliver to our customers, the more we can reduce our cost to serve. So I feel like as we move forward, there's not something structurally changing. There is the macro impact and things that are going on, but we're focused on things in our control. and we feel pretty good about the pipeline that's coming in and the growth that we're going to see as we move past kind of this strange comp period.

Yeah, and, Candice, Matt, I just highlight, you know, retention remains high, and, you know, we can really see this across the business. But, you know, particularly when we're looking in our managed business and our asset-like segment where we're managing the entirety, you know, of some of our customers' logistics spend, I mean, we're just seeing weight for shipment levels be down. You know, when we're stopping by to make pickups, you know, and we might be picking up two pallets now instead of three pallets. And so, again, it's high retention on the customer side, just a little bit smaller shipment sizes when we're coming, you know, to pick them up.

Yeah, and Ken, you also mentioned, this is Seth again, you mentioned the mix of dynamic. The majority of our business is core, and transactional or dynamic business really helps us just maintain consistency in the network, fill empty capacity. Our core business continues to increase, and that's where we're seeing the growth in our pipeline. So you'll see that continue to normalize as we move past this unusual comp in October.

Thank you.

Our next question comes from Tom Wadowitz from UBS. Please go ahead. Your line is open.

Yes. Good morning. I appreciate that. I guess this is a little bit of a follow-up on Ken's on the dynamic pricing. So I think you don't like to give us precisely what the mix of dynamic pricing is versus core LTL, but can you give us kind of a ballpark of what that looks like? Is it, you know, 10% dynamic and, you know, 90% LTL, or just so we kind of have a sense of how that looks, it sounds like maybe that's been stable, but I wanted to see if you could give any further comments on that.

Yeah, Tom, this is Seth. Again, the majority of our business is core. We don't disclose that specific mix between transactional and core. Really what that does, like I said, was position us to maintain consistency in the network, especially during these slower times. And we've seen the core continue to improve. When you look at wait-for-shipment, our transactional or dynamic shipments, they're generally heavier, and that contributes to some of the wait-for-shipment changes that you see. But really what we're focused on is the profitable growth mix management and making sure that we're delivering excellent service to our customers. what's important to understand is we optimize our mix on a daily basis, and it's based on profit maximization based on the market prices and available capacity. And that's a daily exercise we've seen, and you've seen the improved results, you know, if you look over the longer term, that these tools have given us some flexibility in the network that we haven't had before.

Okay. I guess related to that, can you give a little more perspective on, like, Like, how much of the shift to truckload is affecting? It sounded like that might, you know, be having an effect on the mix as well. Like, how big of a move is that? You know, it seems like, I don't know, is that a couple points shift of volume to truck or what's the magnitude of that?

Yeah, Thomas, Christopher, I don't know that we have a clear line of thought on exactly how much that is. I'll just say, again, through our managed business, we see that that is having an impact. And I'd say just that we're prepared to manage the business. regardless of how much that shift is, just through our daily management of pricing and through the mix of our business and just through our large pipeline that we've discussed. We're prepared in any environment, but don't have really a clear line of thought on how much that impact is. We know it's having an impact because we see it and we actually help our customers to do it, but don't have a specific number there.

Yeah.

Thanks, Tom.

Next question comes from Brian Austin, back from JP Morgan. Please go ahead. Your line is open.

Hey, good morning. Thanks for taking the question. So you mentioned that there's an impact in the quarter from hurricanes and port strikes and some of the other disruptions. I wanted to see if you could put a little bit more context around that. And then maybe just as a quick follow-up, can you just talk a little bit more about the labor shipment and yield dynamics in October? I know you have the effort comp that's skewing it a little bit, but I wouldn't have thought to see yields ex-fuel flat with labor shipment still down. So is that going to normalize as you go forward and maybe give a little more context on that as well?

Sure. So just to comment on the hurricane and port strikes, you know, we saw some impact in late September from those events. You know, September started off stronger and then, you know, weakened beyond what we would normally see in September, just thinking about it being an end-of-quarter month. So it wasn't as strong as we'd like to see. And then you saw, you know, some impact from hurricanes in October as well. Just from some service areas being closed, and then when they reopened, we saw some of that demand pull back. But I don't know that it recovered to the level that we would, you know, like to see. And then just from a wait for shipment perspective in October, I would just encourage you to look at more sequential trends rather than year over year. There's just some abnormalities that we've already discussed in October of last year. So if you look September to October, it's more normal trends. And I think, you know, as we get into November and December, you're going to see some normalization there. But just we had an odd month last October as it relates to a cyber event last year that we've discussed.

Right. And then from a yield perspective, though, I guess it's still down 3% sequentially. Is that on an inclusive of fuel perspective or is that excluding fuel?

Yeah. Yeah, I think it was – so I think we commented that it was minus 3%. September to October that was with fuel, and then without fuel, I think we said it was flat.

But we also commented that it was profile-related. Yeah, I mean, and I think that it just is, there's just a different mix as we enter the month, you know, of October. But, you know, I feel like that when, you know, we're looking across what we've seen in third quarter and into fourth quarter, we're not seeing a dramatic change in the yield environment. In fact, we feel like it's still, you know, in a good place and rational. I think we've seen some of the competition continue to raise rates, you know, and announce that publicly. And that's all really good as far as we're concerned.

Sorry, I think, right, the minus three, I think that was with and without fuel sequentially.

Right, right, okay. Okay, thank you.

Our next question comes from Chris Weatherby from Wells Fargo. Please go ahead. Your line is open.

Hey, Gary, thanks. Maybe you wanted to pick up on some of those truckload comments. I guess I'm curious, as you think about the sort of significant differences in the pricing environments in both truckload and LTL, if the sort of normal back and forth that we've seen through previous cycles will hold this time in particular, what do you need to see on the truckload side to be able to have some of that volume come back? And then if I could squeeze in kind of an unrelated follow-up just on the asset light side, I guess obviously it looks like the fourth quarter is maybe looking at another their operating loss, I guess, can we get a sense of what needs to happen to kind of get that business moving in the right direction? Is it at this point just simply an improvement in the cycle or are there other levers that you can pull, particularly on the cost side, that can improve profitability there?

Hey, Chris, this is Seth. I'll answer your first question on the truckload migrating and how it goes back and forth between channels. The truckload market still has too much capacity and that's driven rates down, as we're all aware. That's caused some of those shipments on the fringe in that kind of 7,500 to 20,000 range kind of to shift the truckload, then I think that freight probably works better in an LTL environment, and that's going to shift back when the market normalizes. That shift is really maybe more pronounced this time versus previous cycles because we've just never seen the level of truckload capacity enter the market as we did in 21 and 22 throughout the pandemic. So truckload carriers really don't like to do multi-stop you know, loads. So I think that freight's ultimately going to shift back to the LTL market when the market does turn. So what gives me a lot of confidence and positivity is we've continued to invest in our fleet during this time that we can handle those heavier loads as they can make their way back into the LTL market. On the asset light side, I feel like we can get asset light profitability to a better spot. And part of my confidence is we, as I've moved into this new role, we've really focused on different ways we can do that. And we started evaluating it closely. And the first is really we need to improve the profitability of our account base. We've been challenged by the macro, as you know, but we've developed some tools recently within the last quarter that allows us to take deep dives into account level profitability and also to the lane level. So we started to take those actions. And you heard Matt and his prepared comments talk about some of those pricing actions, but we have more work to do, and we think we got a lot of runway there. The second is the mix of our business within truckload is more heavily weighted towards enterprise, and we're trying to get the mix more to, you know, focus on S&B middle market as much to kind of increase that amount of business simply because it's more profitable. We've invested in a team of about 50 people that are focused on growing middle market in S&B, and we're seeing early signs of success there to get our mix in a better spot. The third is really around cost control. We took some additional actions in mid to late third quarter, and we expect to see those kind of bake themselves in. But we're constantly looking at cost and the way we can control based off the revenue levels that we're given because we don't want to impact future growth opportunities. So it's a delicate balance, but I feel like we're really focused in that area. The fourth is really around managed solutions. That service has resonated with our customers. We've seen double-digit growth. It is contributing positive operating income to our results. So we feel like we're going to continue to grow there. And then the last is really around efficiency. We saw productivity improve 20% asset light. We have a really good roadmap of future improvements. The carrier portal, load board automation, all the AI tools we're working on, we feel like efficiency is going to be in a really good spot. And really, we've continued to focus on our people. We feel like we have the best people, and getting them the training and tools they need to execute on the business will get asset light to a better spot.

Appreciate the comment.

The question comes from Scott Group from Wolf Research. Please go ahead. Your line is open.

Hey, thanks. Good morning. So I want to come back to the yield backdrop. I'm just not sure I'm fully understanding, you know, because I totally get there's a bit of a tougher comp in October. But to go from high single-digit yields growth to flat and maybe November, December up a little bit, but wafer shipments down, which should be helping yield. You've talked about the GRI, the renewals. I guess I'm just not sure why the reported yield trends are just ex-fuel or slowing so much.

So, Scott, this is Matt. I mean, certainly we've talked about some of the year-over-year dynamics on the sequential dynamics from September to October. There just are some profile impacts. And so actually weight per shipment was up from September to October. And then we saw a little bit of a decrease in length of haul. And, you know, again, I think that's not really indicative of any broader trends related to pricing. It's just more some of the freight mix that we saw in October and its impacts on pricing.

And maybe just bigger picture, right? So we've got tonnage down, yield maybe flattening out, margins. I think your guidance implies down like 500 base points or something year over year. Do we just need to wait for like the truckload market to tighten an ISM and we're sort of stuck with this for the time being? or is there stuff we can do to start seeing margin improvement again in 25, you know, irrespective of just the cycle turning better?

Hey, Scott, this is Seth. We believe we can improve our OR on the asset-based side, and it really comes down to a few areas that we're focused on. Revenue growth obviously will help. That's been a headwind, and when that becomes a tailwind, that will be great. But what gives me a lot of encouragement is the growth in our pipeline. We've seen our core business continue to improve with our service levels, improving our retention rates are in a good place. Our customers are just shipping less. Instead of giving us three, they're giving us two skids, and that's why you're seeing that weight per shipment piece. But growth really comes down to that service you provide, and we've made some great strides over the past year to get to a better spot, get back to where we've historically been. And we hear from our customers that that is what they're feeling as well, and that really helps us continue to grow. The next is efficiency. We've talked about city optimization. We're getting ready to roll out those next two phases. The new dock software rollout is going well as well. That's given us visibility that we have. The team of experts that we deployed that we mentioned in our opening comments, they're really just getting started. We've only done a few facilities. We still have the whole network to go, and we have a very detailed roadmap of efficiency gains we can make. It's a large cost basis, so we think we can – although we've hit a multi-year high on efficiency, we feel like we've got a lot of runway there. Real estate investments, they're really centered around where we see opportunities for growth, efficiency, and service. In each case where we've opened a new facility or added capacity, we've seen efficiency gains in the double digits, and we've also seen growth opportunities where we wouldn't be investing in those areas. So that's been a great win for us. We've added about 800 doors this year, but these aren't one-year decisions. These are multi-year decisions, which is why we invest in these type of cycles so we can be positioned when things turn around. The fourth is around equipment. We really have made sure to maintain a new fleet, keep the uptime in a good spot, and it also is helping us from a cost perspective. We saw about $4.7 million reduction in our fleet costs. And really, I mentioned our people when I was speaking earlier, but we have spent an enormous amount of time with our people in the field, bringing them into our corporate headquarters, training them up, and we've seen those results directly impacted in our efficiency numbers, our service numbers, and that's why I feel like we'll get asset-based or to a better spot as well.

Thank you, guys.

Next question comes from Bruce Chan from Steeple. Please go ahead. Your line is open.

Hey, thanks, operator, and good morning, everyone. Just want to follow up on some of the asset-like commentary, if you can maybe help us to parse the results by service. I know we don't have the, you know, same reporting granularity that we used to. So any caller on, you know, whether some of the non-brokerage businesses are contributing positively or those also loss-making? And then, you know, just a quick follow-up here. I don't know if I missed it, but I think you talked about some of the pricing actions in brokerage. Does that imply that we need to wait for that contract repricing cycle to see, you know, of maybe some positive contribution from that segment?

Hey, Bruce, it's Matt. So, you know, on the asset life side, you're right. We don't provide, you know, service line level details. But, you know, certainly I would say, you know, the biggest two contributors. One is just the truckload brokerage pricing environment that we've talked about. But, you know, on the positive side, we certainly are seeing strong contributions from our managed service line, you know, which is, you know, contributing positively to the overall operating income result. And then, you know, as it relates to pricing, I don't know, Stephen, if you want to comment at all on just maybe kind of what we might expect to see or what that timing might look like.

Yeah, I think as market conditions improve, you'll obviously see opportunities for, you know, So prior to that, I mean, we, you know, we're, as Seth mentioned, we're looking at lane level, customer level pricing. We're, you know, we want to make sure that we're compensated for the service we provide. So we're doing that on a regular basis. And so we'll continue to focus on any area to improve net revenue as we, you know, as we kind of work towards an improved macro environment.

Okay. So just, you know, not to harp on it too much, but, you know, it sounds like that would probably be a later in 2025, you know, kind of timeframe for that flip to profitability there. Is that fair?

Well, you know, the other thing that Seth mentioned is, you know, the mix of business. We think about segments, and we are seeing, you know, growth outside of maybe the contract area. So we have opportunities to improve there as well, and we can do that ahead of the cycle. So, you know, again, the cycle helps. You know, as the macro gets better, that helps us. But we have opportunities to improve outside of just a macro improvement. And we're focused on those areas. We've got, you know, our people focused there, and we're making progress. Okay.

Our next question comes from Ari Rosa from Citi. Please go ahead. Your line is open.

Hi. This has been more on for Ari here at Citi. Following up on Scott's question on margin outlook, looking to 25 for your LTL, just wanted to get your thoughts on your historical average sequential seasonality for OR based on what we estimate looking at your last 10 years, Q1 on average up 100 to 200 basis points, Q2 down 400 basis points, Q3 down 100 basis points, 4Q up 100 to 200 basis points. And your business has changed over time with your space-based pricing, your service and culture initiative you mentioned, your city route optimization. I wanted to get your sense. Is this reasonable? Can you give us better ranges, or what puts your take on beating those in 2025?

Yeah. Yeah, so, Ben, I appreciate the question. You know, I think we've hit on, you know, a lot of the key themes, and I think Seth has done a good job just highlighting the focus in the AVF business. You know, I mean, we feel like we're focusing on what we can control. You know, we're in a great spot from a service perspective, on-time perspective, productivity perspective, feel great about our pipeline and how that's developing for next year. You know, certainly we can talk about just kind of what we've experienced historically, you know, quarter to quarter over the last 10 years, and certainly we have that history and it's available. We can talk through it, you know, in some more detail later if that's helpful. But, you know, certainly we continue to be focused on just continuing to achieve pricing outcomes that are, One, just reflective of the great value that we're providing to our customers. And, again, a lot of that's being reflected in the results that you're seeing from ASTEO this year. And really achieving some great improvement over the cost, you know, items that we're seeing in those increases on a year-over-year basis. And we feel good about where that's headed.

Great. Thank you very much for the caller.

Our next question comes from Stephanie Moore from Jefferies. Please go ahead. Your line is open.

Good morning. Good morning, Liz.

Maybe sticking on the margin front, if you could just talk about the puts and takes of the 3Q to 4Q margin guide. Clearly called out the weaker top line environment. But maybe if you could kind of talk through whether it's wage inflation, insurance, but also what productivity initiatives you have underway to maybe offset some of that pressure and then kind of taking it a step further, you know, to come in a little bit better than your expectations, what would we need to see?

Yeah, so thanks, Stephanie. So, you know, certainly there's not the items in the quarter like we had in the third quarter. We had our annual increase, you know, for our union wage and benefits. And so, you know, I think we've done a good job just highlighting today how we're focused on the cost side, and we're going to continue that focus and finish out the year strong there. And so, you know, I do think that just in terms of where the expectation is for the quarter, that's just based on, you know, where we see the macro backdrop developing, you know, here over the next couple of months. And so to the extent that that ends up in a stronger place than what we're seeing right now, we could see some improvement. But, you know, again, I think we're going to continue to see dividends paid on all the projects that we've been talking about on the productivity and efficiency side, both as we exit the year and as we head into 2025.

Hey, Stephanie. You know, I just want to be sure that, you know, we're thinking about, I guess, the way that we're going to market and the opportunity set that we have. You know, we've talked a lot today about our pipeline, and we've also talked about the macro and various initiatives that we have to try to, you know, gain ground both in growth and efficiencies. And I just think it's really important for us to be able to relay to you, you know, the confidence level that we have in our ability to engage with customers in constructive ways, even in a weaker environment. You know, we don't take our foot off the gas pedal, you know, because of a weakness in the economy. In fact, the positioning that we have really helps us and especially our customers, you know, to navigate through these things. So, you know, we're talking about all the insights we have. It's because we're doing business with customers in different ways, whether it's in our managed offering or somewhere else in the business. But what I love is our ability to navigate around, you know, into the solutions that are going to work best for customers in this kind of environment. And we are seeing a lot of success there. You know, the pipeline that we have in managed, you know, and LTL and truckload are all really strong and, you know, growing in momentum. And we have a lot of that in late stage. So, you know, as we, as we close out this year and into next year, I feel like we're really strongly positioned to say yes and to help our customers navigate to the best solutions they can possibly have to help their business.

Thanks, Judy.

Really appreciate it. Our next question comes from Jason Feidel from TD Cowan. Please go ahead. Your line is open.

Thanks, Opern. I appreciate you guys squeezing me back in here. Look, I hate to be a dead horse, but I'm going to have to break out the crop here. Can you help me with a little bit of your increase sequentially in your weight per shipment that you mentioned and the decrease in your length of haul? Because I'm just trying to sort of level set where you're at, that nice GRI at 5.9%, and then you're getting 4.6% on your contractual business. So I would have assumed ex-fuel, even on a sequential move, that you would have been a lot better with those yield numbers. And I would love to see here sort of like what was the big shift.

Hey, Jason, this is Christopher again. So it's sequential to October. You know, it's one thing that we haven't talked a lot about is just the weather effect that happened in September. And there's some underlying trends that have, you know, if you close the service center down for a few days and once you reopen it, Something that we've just observed is that those customers, you know, they may have had some phrase that they were about to ship one pallet. Now that they've reopened, now they've shipped two pallets. So just some profile dynamics that the external factors influence on those areas. Sequentially, September to October, you think about those impacted areas had a higher weight per shipment. So you just have some mixed changes that I would say were abnormal sequentially, September to October, that is influencing that revenue per hundredweight stat. And, again, we just are managing our business day-to-day to make sure we're getting the best results, really regardless of the profile that we have. And revenue per hundredweight is one yield stat, but obviously we're looking at the core profitability of the business, and that's not really the end-all, be-all of the profitability of our business.

No, I understand that. I was just trying for you guys to put some numbers around the weight.

Yeah, I mean, I think we can talk about it in a little more detail. I mean, really, those numbers are not significant. I mean, we're talking about, you know, a low single-digit increase in weight per shipment and a low single-digit decrease in length of haul, you know, again. And I think there's some of these dynamics that Christopher's talked about that we think probably contributed to that. But no big trend or read-through as it relates to pricing just with the sequential September to October move.

Okay. I appreciate that. That's helpful. Okay.

Our next question comes from Brian Austinbeck from J.P. Morgan. Please go ahead. Your line is open.

Hey, thanks for taking the follow-up question. Maybe if you can just walk through sort of the changes in the capex spend. I think real estate went down a little bit as well as equipment. Is that sort of just normal true-ups through the end of the year? Are you taking a different sort of approach there? And then I guess on the back of that, obviously, the rest of the yellow facilities are still up for auction. So anything there that we should expect you to look at or potentially pick up here in the next round?

Yeah, Brian. So as it relates to CapEx, I would say, you know, on the equipment side, we expect it's been, you know, consistent with what we had laid out for the year. On the real estate side, you know, there were some opportunistic purchases that we were considering and that we thought might come to market. And so those have been, you know, delayed a little bit. We're still looking at opportunistically making some purchases in some markets where it makes sense. And then as it relates to the yellow process, I'll let Matt Godfrey maybe just comment a little bit on that and what we might be hoping to see there.

Yeah, thanks, Matt. So as Seth mentioned, we acquired four yellow facilities in the previous auction. We've opened three of those already, and we'll bring the last one online in the fourth quarter. And those facilities have been positive contributors to our efficiency, service, and capacity in those markets. And we really appreciate what our people have done to transition facilities and not have any disruptions for our customers. And so, as you mentioned, the second phase of the auction is about to kick off. Indications of interest were due last month. We've submitted our interest in a few locations, and these are locations that we were interested in previously. and we're just really awaiting the next steps in the auction process on how that will move forward.

The next question comes from Ari Rosa from Citi. Please go ahead. Your line is open.

Hey, this is Ben again for Ari. Just going back to LTL margin and touching on what Ravi asked about on your MASCO survey, you are showing tremendous, really fantastic improvement across the board, damage, shortage, on-time, pickups, deliveries, and especially building accuracy where you're better than a number of your peers, which is very important for all of these, for volume and pricing in upcoming quarters. I wanted to ask, how much do you attribute these to your various initiatives, your training, your culture, service, your figure-out optimization, others? And then, more importantly, how much runway is there left? If you mentioned on a lot of these, you're done with the first phase out of three phases, so there's two more phases. Does this mean roughly about 66% more runway for all or most of these initiatives for service improvement, which could get you more volume, more margin?

Yeah, Ben, this is Seth. I'll start, and then I'll have Matt Godfrey chime in as well. So we think all of the things that you mentioned around efficiency ultimately improve service. But when we look, we feel like we do have quite a bit of runway there. We went back to our historical position on the mass deal. We always exceeded industry benchmarks for 19 of the last 20 years in 2023. We hired a lot of new people. We got a lot of new process. Just a lot of things happened. So we listened to our customers, and we responded very quickly to get back on track and move back into the position where we've historically been. Most of the initiatives that we did, I would say, improved service on a tactical side. Now we're focused on kind of holistically, like website, ETAs, you know, visibility into customer supply chain. A lot of the work around efficiency, which Matt will mention, is also going to improve that. So I feel like we still have quite a bit of runway to go because even though we're in a great position, we ultimately – our goal is to be number one on the Mastio because we think that translates to better growth and better price from our customers.

Yeah, and to follow up there, I appreciate your question on city route optimization and trying to understand the percentage of runway. I think the way to think about that is the first phase of city route optimization had the largest impact. It's going to have the bulk of the impact. But we are excited about Phase 2 and Phase 3 and really Phase 3 around pickup optimization. Not only is there an efficiency runway there, but when you think about the most important things as it relates to the Mascio survey and pickups being high on that list, we think it will have a really positive impact for our customers on the pickup process. So we're pretty excited about that. You know, some other things that we are working on that we're going to begin piloting here later this year around appointments and optimizing that process. You know, that's something our people spend a lot of time on. It's something our customers rely on us for. It's a service that they find value in our offering, and we really want to make that process easier for our people and our customers. And then another thing we're working on around line haul optimization. Again, another project focused on service and efficiency. We've made some gains this year kind of in the early stages on that, and we're really excited about what's to come on that as well. So we think we have a pretty significant runway not only to improve our service but to increase our efficiency at the same time.

Thanks so much for the color.

Our last question today will come from Scott Group from Wolf Research. Please go ahead. Your line is open.

Hey, thanks for the follow-up. I just had a longer-term question on the pension side. I know no immediate impact, and it's still the final ruling still to be determined, but does the outcome of the yellow pension withdrawal liability, how do you think that impacts your long-term pension contributions in any way? If they have to pay bigger withdrawal liabilities, does that help? Or how do you think about that?

Well, Scott, you know, we've watched these issues and monitored, you know, them for decades. And, you know, what our obligation is is just to pay in, you know, the hourly rate that we negotiate based on the hours worked. And so we had that negotiated. obviously, you know, through 2028, but also a larger impact here was the American Rescue Plan that put in place a lot of funding and really has positively impacted, you know, the most distressed multi-employer pension funds. So, you know, I think I don't know what the dollars are going to be related, you know, to this other settlement. But my feeling is that those won't be significant to the overall situation that we're in today. And so, you know, I feel like that every five years we negotiate the rates here. And the fact that the American Rescue Plan better funded the most distressed funds, you know, puts us in a place that's better than we were before that law was enacted. And I think that's the way to think about it, because we're just planning to continue to do the same things that we've always done. And it's continued to put us in a more reasonable place. And large increases in pensions, we haven't seen anything like that since 2013. So more than a decade, we've been in a position where the hourly rates we pay are more than adequate, you know, to address our situation. And so that's the way I think about it. It's just, you know, something that we obviously have to stay close to and monitor, but it's not a negative for us as we see it.

Makes sense. Thank you, guys. Appreciate it. Thanks, guys.

We have no further questions. I would like to turn the call back over to Amy Mendenhall for closing remarks.

Thank you for joining us today. We appreciate your interest in ArtVest. Hope everyone has a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.