Earnings Call Transcript - ARCB Q4 2024

Operator, Operator

Hello and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the ArcBest Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the conference over to Amy Mendenhall, Vice President, Treasury and Investor Relations. Please go ahead.

Amy Mendenhall, Vice President, Treasury and Investor Relations

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

Judy McReynolds, Chairman and CEO

Thank you, Amy, and good morning everyone. Despite a challenging freight environment in 2024, we remain focused on executing our strategy to create value for our shareholders and customers and ensure we are well-positioned to capture growth when the market turns. At ArcBest, we believe in a win-win approach, providing premium value to our customers, which in turn benefits our business. With our comprehensive suite of integrated services, ArcBest is more than just a transportation provider. We are an innovative strategic partner for our customers. Our decisions are always customer-led, and our entire team is dedicated to listening and crafting solutions to meet our customers' unique needs. Supply chains are becoming more complex, and our shippers use a mix of modes to keep their supply chains moving. ArcBest-managed transportation solutions seamlessly connect these modes to build better supply chains, driving improved customer retention and profitability. As supply chains modernize and customers seek efficiencies, the demand for better shipment visibility is growing. We have invested significantly in this area to provide industry-leading visibility, enhancing trust, and enabling customers to make more informed decisions based on real-time data. Our industry-leading efforts are being recognized as evidenced by Matteo ranking ABF number one in the industry for the most useful website and number two in the industry for proactive communications. Additionally, our ongoing service enhancements have reduced customer service requests by 20%, decreasing operating expenses, and we're constantly improving. We look forward to sharing more about a new platform we'll be publicly launching in a few months. Excellence is one of ArcBest's core values. Delivering a premium experience for our customers requires excellent execution from our team every day. In 2024, we upheld this core value by training nearly 5,000 employees on our quality process, deploying operational teams to enhance execution, launching multiple technology projects, and investing in our fleet and facilities. We also lead in innovative value-enhancing solutions to improve LTL margins and capacity utilization, including shipment-level cost visibility, dynamic pricing, and space-based prices. This allows ABS to select the shipments that best leverage the ABS network and is a key reason why we have the strongest asset-based LTL pricing metrics among public competitors. Our full-year ABS non-GAAP operating ratio for 2024 was 91.2%, marking a 670 basis point improvement since 2016. I will note, our operating ratio includes approximately 600 basis points in union pension costs. Adjusting for those costs, our operating ratio compares very favorably to our peers. While we made tremendous progress, we recognize there is more to be done. Two weeks ago, we announced a series of leadership and organizational updates across the business, reflecting our commitment to continuous improvement and innovation. I'm confident that we have the right team in place to advance our strategic priorities and drive sustainable long-term growth. Our President, Seth Runser, will cover those changes in more detail. Before I turn it over to him, I'd like to thank Steven Leonard, who recently announced his retirement for his 24 years of service. Steven has been a key part of ArcBest's transformation into an integrated logistics company. He will be greatly missed when he retires later this year. And now I'll turn it over to Seth to outline our key areas for 2025.

Seth Runser, President

Thanks Judy and good morning everyone. As I stepped into my new role, I embarked on a listening tour across our company, engaging with employees to identify barriers to growth and opportunities to streamline our business. This experience has further strengthened my conviction in our strategy. Our people and our customers consistently tell me that ArcBest is uniquely positioned to help navigate disruptions and build better supply chains with our comprehensive suite of integrated solutions. In 2025, our focus is on enhancing execution and driving profitable growth. To start, we recently announced some organizational changes designed to remove barriers to growth, enable faster decision-making, and foster better collaboration across key areas of the business. Eddie Sorg has been named Chief Commercial Officer and will lead an expanded commercial organization aligning our revenue engine across teams like sales, marketing, yield, and customer solutions, all under one leader. Additionally, Christopher Adkins has been appointed Chief Strategy Officer. Under his leadership, we will centralize our strategy management and data science teams. This team will advance our highest priority initiatives and work to further streamline processes and enhance productivity. We are also investing in our sales force to ensure we have the right resources to manage customer relationships and grow new business. We are expanding our presence within the small and middle market segment, which presents a significant growth opportunity. In 2024, we achieved a 55% increase in our overall pipeline, and we have a clear plan in place to accelerate this even further. Moreover, we are enhancing customer service to improve customer retention, including expanding the dedicated teams that support our top customers and developing onboarding teams for new customers. Over 80% of our customers have been doing business with us for over 10 years, and we will continue providing the personalized and exceptional service these customers have come to expect from us. Disciplined execution remains a cornerstone of our approach. We made significant progress on cost improvement in 2024, and we will continue to focus on further improvements in 2025. We reached a multiyear high for employee productivity last year and will drive further improvements through optimization, innovation, and training. We have deployed training and compliance teams to 15 facilities, resulting in $12 million in savings. We plan for this team to visit additional facilities in 2025, with the roadmap extending through mid-2026 to achieve further gains. In 2025, we will accelerate the optimization of our operations by harnessing the power of responsible AI and machine learning to enhance our employees' ability to make quicker, better-informed decisions. In 2024, we laid the groundwork with projects like the initial phase of our city route optimization project, AI-assisted appointment scheduling, and truckload augmentation tools. This year, we will build on that foundation, advancing demand forecasting and route optimization to drive ongoing cost savings and service improvements. Our focus on costs and productivity has helped mitigate inflationary headwinds in areas such as insurance and healthcare, and we continue to review our operations to identify areas where we can streamline processes and enhance productivity. As we accelerate into our next century with excellence, we will achieve success through purposeful collaboration. By driving innovation, moving with urgency, and providing customers with premium service, we will strengthen our financial position and ensure we are well-prepared to meet the evolving needs of customers and capitalize on market opportunities. I'll now turn it over to Matt to go through the financials in greater detail.

Matt Beasley, Chief Financial Officer

Thank you, Seth, and good morning everyone. 2024 was a year marked by a sluggish industrial economy and a challenging truckload market. Despite these headwinds, our team's resilience and our strategic initiatives enabled us to navigate these challenges and deliver solid financial results. I'm pleased to report that in 2024, we achieved our third-best revenue and fourth-best non-GAAP operating income in company history. Turning to our fourth quarter results. Consolidated revenue decreased by 8% from last year's fourth quarter to $1 billion. Non-GAAP operating income from continuing operations was $41 million compared to $82 million in the prior year. Our Asset-Based segment saw a $35 million decrease in non-GAAP operating income, while the Asset-Light segment had a non-GAAP operating loss of $6 million, which was $5 million worse than the prior year. Adjusted earnings per share were $1.33, down from $2.47 in the fourth quarter of 2023. Now, let's discuss our two segments in more detail. Starting with our Asset-Based business. Fourth quarter revenue was $656 million, a per day decrease of 8%. ABS's non-GAAP operating ratio was 92%, an increase of 430 basis points over the exceptionally strong performance in the fourth quarter of 2023, which was driven by additional business at higher prices following the cyberattack on a competitor that tightened market capacity. ABS's non-GAAP operating ratio increased 100 basis points sequentially, which was on the lower end of the historical range of 100 to 200 basis points increase. With ABS's 2024 ratio of 91.2%, our union employees qualified for a 1% profit-sharing bonus payout. In the fourth quarter, daily shipments saw a decline of 1% year-over-year, while weight per shipment decreased by 6%, resulting in a 7% decrease in tons per day compared to the previous year. This decline is primarily due to 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. Despite lower tonnage levels, the volume of shipments remained relatively stable, which meant that labor costs didn't scale proportionately to tonnage declines. However, improved productivity through technology and training helped mitigate costs while maintaining high service standards. Costs for fuel, repairs, and purchased transportation were all lower on a year-over-year basis, but insurance-related costs increased by $9 million, adding 160 basis points to our operating ratio year-over-year. We secured an average increase of 4.5% on our contract renewals and deferred pricing agreements during the quarter. Revenue per hundredweight decreased by less than 1% in the fourth quarter compared to the strong fourth quarter of 2023, when revenue per hundredweight increased 7% as a result of the previous market disruption. Price improvements have been partially offset by declines in fuel costs. Excluding fuel surcharges, revenue per hundredweight increased in the mid-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. In January 2025, ArcBest's Asset-Based segment experienced lower tonnage and shipment levels compared to the same period last year. As the freight environment remains soft and truckload prices remain low, we continue to see a reduction in heavier-weight LTL shipments and fewer household goods moves, which contribute to a lower weight per shipment but a higher revenue per hundredweight. January was also impacted by winter weather conditions, with ABS experiencing the highest number of service center closures since 2014. Excluding pandemic-affected periods, the average sequential change in ABS's operating ratio from the fourth quarter to the first quarter over the past decade is typically in the range of an increase of 350 to 400 basis points. Even with the winter weather we experienced in January, we expect our first-quarter operating ratio increase to stay within this historical range. Moving on to the Asset-Light segment. Fourth quarter revenue was $375 million, a daily decrease of 9% year-over-year. Shipments per day were down 2%, and revenue per shipment decreased by 7% due to the soft freight market and growth in our managed business, which has smaller shipment sizes and lower revenue per shipment levels. While we maintained our focus on reducing costs and improving employee productivity, the non-GAAP operating loss of $6 million shows that our business continues to be impacted by current market conditions. In January 2025, Asset-Light year-over-year daily revenue was down 6% due to fewer shipments from winter weather and a strategic reduction in less profitable truckload volumes, which are offsetting the continued strength in managed. Lower revenue per shipment resulted from soft freight market conditions and a higher proportion of managed business with smaller shipment sizes. Given current market conditions, we anticipate a non-GAAP operating loss for the segment between $4 million and $6 million for the first quarter of 2025. 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 better align resources to match business levels and we are maintaining our pricing discipline. These initiatives are our top priority as we focus on returning the Asset-Light segment to profitability. I'll now turn to our long-term balanced approach to capital allocation. In 2024, we invested a net $280 million in capital expenditures, including adding capacity to our network and investing in our fleet. These investments enabled growth, improved service, and increased efficiencies across our network. Our 2025 capital expenditures are estimated to range from $225 million to $275 million, primarily for revenue equipment and real estate. We also returned over $85 million to shareholders in 2024 through both share repurchases and dividends. We will act opportunistically on share repurchases based on share price, balancing organic capital investments while maintaining reasonable leverage levels. Our balance sheet remains strong, and we have approximately $450 million in available liquidity. We look forward to building on our momentum in 2025, and we remain focused on delivering strong results. I am confident that the strategic initiatives and leadership changes that Seth discussed will drive our continued success and position us well for future growth. I'll now hand the call back to Judy.

Judy McReynolds, Chairman and CEO

Thank you, Matt. Our people are at the heart of our success, and our ongoing investment in them is a key enabler in reaching our goals. We are especially proud to be recognized as one of America's Best Large Employers by Forbes, one of the Best Companies to Work for by U.S. News and World Report, and for the 15th consecutive year, we have been named among the training Apex Award winners. I want to extend my heartfelt thanks to all ArcBest employees for their unwavering commitment to continuous improvement and exceptional customer service. The adaptability and grit our team demonstrates every day makes me incredibly proud. That concludes our prepared remarks. I'll turn it over to the operator for questions.

Operator, Operator

Our first question will come from Jason Seidl with TD Cowen. Please go ahead.

Jason Seidl, Analyst

Thank you, operator. Good morning Judy and team. Real quickly, when we're looking at the sequential OR movements that you talked about for the Asset-Based business, it's nice to see that you're going to stay within the range. Sort of what are the things that you're doing to offset the weather? And then I have just a quick follow-up.

Seth Runser, President

Yes, hey good morning Jason. Certainly, we see continued improvements from the productivity and efficiency work that we've been doing. We saw some lower purchase transportation expenses as we move sequentially quarter-to-quarter. Additionally, we also have annual incentive plans, both from our union and non-union employees. We adjust those on a quarterly basis just based on our performance, and there was also some impact in the quarter from that as well.

Jason Seidl, Analyst

Okay. And then my quick follow-up here is, when I look at pricing, you guys talked about a rational pricing environment. But when I look at your sort of trend here on price increases, if you go back to the fourth quarter of 2023, it's 5.6%, then 5.3%, then 5.1%, then 4.6%. Now, we're hearing 4.5%. Still a decent price increase, but the trend obviously is downward. Can you talk to that? And are you seeing any pressures in the marketplace due to the sluggish freight environment?

Christopher Adkins, Chief Strategy Officer

Hey Jason, good morning. I would characterize the fourth quarter pricing result as in line with the third quarter. We continue to maintain discipline there, making sure that we're securing increases and working on our efficiency to offset the inflationary pressures that we face from a cost basis. We continue to see a rational environment there. I wouldn't say we've seen any more pressure in recent months than we have throughout the year. Looking back at the full year of 2024, we achieved a 4.9% increase, which, if you compare that to the 20-year period, is a top-five result. So, really proud of the team for that result. If you think about the freight recession we've been in for the last several years, that's a testament to just the service that the ABS team has delivered, and our customers appreciate that value and are willing to pay for it.

Jason Seidl, Analyst

That’s a helpful response, and I appreciate the time as always, guys.

Christopher Adkins, Chief Strategy Officer

Thank you, Jason.

Operator, Operator

Our next question comes from the line of Daniel Imbro with Stephens. Please go ahead.

Daniel Imbro, Analyst

Hey good morning everybody. Thanks for taking our questions. I wanted to ask maybe another one on the OR seasonality heading into Q1 here. I guess in the fourth quarter, I would think you guys probably had a benefit from an unwind of the accrual from the bonus payout. I think in the script, you mentioned you paid a 1% bonus, but you were tracking towards the 2% through the third quarter. So, I guess you could help quantify what that tailwind was in the fourth quarter if there was one? And then, I guess, in that context, I would think if that's a tailwind of Q4, that makes it a harder comp in Q1 if you sort of create at a 2% rate again. So, I guess, what are the offsets there? If you just add any more color about how we should think about that bonus impact on the OR?

Matt Beasley, Chief Financial Officer

Good morning, Daniel, this is Matt. As I mentioned, we have various plans, including executive plans that we adjust quarterly based on performance, taking into account operational results and stock performance over that time. I don't have a specific number for you, but there was certainly some impact in the fourth quarter. When looking at shipment and revenue from the fourth quarter to the first quarter, we faced several weather days in January, the highest we've seen since 2014. However, on the days unaffected by weather, the trends were encouraging. We're optimistic about seeing sequential improvement in revenue compared to our historical seasonality.

Daniel Imbro, Analyst

Okay. Are we considering how the bonus accrual might impact 2025? Should we anticipate that to be a challenge compared to last year?

Matt Beasley, Chief Financial Officer

I mean we just have a typical process that we go through, again, across all incentive plans on our close process as we go move on a quarterly basis. We would expect to true all those plans up with expectations as we move through the year.

Daniel Imbro, Analyst

Thanks.

Operator, Operator

Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

Jordan Alliger, Analyst

Yes, hi. Just sort of curious how you're thinking about yields, i.e., revenue per hundredweight. You got some tough comps ahead from 2024. Do you think that number with fuel can stay positive through the year? Thanks.

Christopher Adkins, Chief Strategy Officer

Hey, good morning Jordan, this is Christopher. That's definitely our goal, to remain positive there. I just want to call back to that as a proxy for price. There are other elements to pricing like we talked about weight per shipment, length of haul, and there's other factors as well. So, as the mix plays out throughout the year, as we have opportunities in our strong pipeline come on board, we're very focused on making sure that new business that we bring on, whether it's from bringing on new logos or growing with existing customers, is profitable. Revenue per hundredweight is just one proxy there, but we really don't manage to that. We manage through the profitable outcome that we're setting out.

Jordan Alliger, Analyst

Thank you.

Operator, Operator

Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker, Analyst

Thanks. Morning everyone. Maybe just a big picture question. I mean we've heard some of the TL companies kind of obviously, 4Q was a pretty good peak season and maybe some momentum continuing into 1Q. But in the LTL space, it feels like demand fundamentals are much weaker. Kind of does it seem like demand in the TL and the LTL space are going in all the directions? Is that just a function of end markets, consumer versus industrial? Is that a seasonality thing? How would you think about that? And also, kind of just a follow-up on the price. Kind of do you feel like there is still an opportunity to push to kind of mid, high single-digit pricing if and when a cycle really picks up in the back half of the year? Thank you.

Seth Runser, President

Hey Ravi, this is Seth. I appreciate the questions. I'll start out with your first question and then I'll pass it to Christopher on the pricing question. But as far as the freight environment goes, we monitor the markets closely and we acknowledge the macro impact and the length of the cycle, something we haven't seen in our history. January hasn't really given us a clear view into the start of the year, just because of the weather impact that we mentioned. There's a lot of certainty out there, so that's made it tough to predict with regulations potentially being reduced in tariffs. So, tax savings could impact free cash flow and cause more investment. We’re watching a lot of different things, but regardless of the environment, we're well-positioned to handle any of those environments. We've seen many of these cycles over our 100-year history. We navigated the last tariff situation well. We view markets like this as an opportunity and we feel providing excellent service to our customers is what's going to continue to allow us to grow. We're focused on things in our control, continue to listen to our customers, help them navigate this challenging time. We're also optimizing our costs to ensure that we continue to position ourselves when the market turns. Pipeline metrics are strong. We feel good about where demand is at, but we just got to see a few things clear up as we move into the new year to give better guidance on that.

Christopher Adkins, Chief Strategy Officer

Hey, good morning Ravi, this is Christopher again. Just from a pricing standpoint, that's a discipline that we've had for many decades at this point, where we have a cycle of renewals for contractual kind of deferred pricing that we're working with our customers. Most of them have a 12-month cycle to make sure we're securing the increases there. So, our plan is to secure good increases, really regardless of the market, because we do recognize that we face inflationary cost pressures that we have to offset. Again, just drawing back to the service, just really proud of the ABS team there that our customers have valued and appreciated the premium service that we're providing and understand when we do need to secure increases.

Ravi Shanker, Analyst

Perfect. Thank you.

Christopher Adkins, Chief Strategy Officer

Thanks Ravi.

Operator, Operator

Our next question comes from the line of Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz, Analyst

Good morning, Judy. I wanted to hear your perspective on how the competitive landscape might evolve, especially considering FedEx's recent announcement about spinning off and their plans to increase their salesforce with a focus on small and medium-sized businesses. Do you believe this development is positive or negative for the market? I assume many companies have some competition with FedEx Freight. I'm not sure how much you’re inclined to discuss competitors, but this seems like a significant event in the industry. Thank you.

Judy McReynolds, Chairman and CEO

Yes, it sure is. I mean, it's a big noteworthy event. What I'd say about them is just like the other competitors, I think that we have now across the board are a strong competitor. I feel good, as Christopher has articulated a few times here about the pricing environment, and I feel good about the competitive environment being one that we can succeed in because we are. We've had a 55% growth in our pipeline this year. We feel like it's within our control to execute on that pipeline, and we've got a lot of business that's in late stages. I feel like the multi-solution integrated approach that we go to market with is just really responsive in a time like this because there are so many unknowns. It seems like there's a disruption every six months. We've just gotten proactive about planning for the unexpected. That's something our team excels at, and I feel like the suite of solutions we have to offer and the combinations thereof is just very responsive. Many of our competitors are coming to market differently from one another, but I like where we are.

Tom Wadewitz, Analyst

What is your approach to the market in terms of customer size or specific vertical types? Do you believe your sales strategy differs in the SMB segment, which tends to be more sales-intensive, and do you notice variations in competitive dynamics across different market segments? Where do you feel your approach resonates best?

Judy McReynolds, Chairman and CEO

What's interesting about your question is just our recent organizational changes. I think the Chief Commercial Officer role that Eddie Sorg is going to be taking, starting tomorrow, will make a difference. So, Seth, do you want to talk a little about that?

Seth Runser, President

Hey Tom, this is Seth. When I think about growth, we have a tremendous opportunity with the markets we operate in, having over $400 billion worth of potential. We have a lot of potential to expand within our current loyal customer base alone. We want to make sure we price that aligns with the value that we provide. We see a lot of opportunity in front of us, and we just need to do a better job on the execution front, which is why we announced these changes. By aligning sales, marketing, yield, and CX all under one leader, we have the opportunity to capitalize on those opportunities that we see. We're going to continue to focus on optimizing our mix. We've seen double-digit growth in our managed solution. We expect all these recent changes are going to accelerate not just one particular segment, but all segments. We're seeing some good signs, but it's just a little early with the weather and everything going on in January. I think this unified approach will allow us to capture growth opportunities better than we do today and provide alignment between the sales and yield team, which will strengthen our go-to-market approach.

Tom Wadewitz, Analyst

Great. Thanks for the time.

Judy McReynolds, Chairman and CEO

Thank you.

Operator, Operator

Our next question comes from the line of Chris Wetherbee with Wells Fargo. Please go ahead.

Chris Wetherbee, Analyst

Hey, thanks. Good morning guys. I wanted to ask about weight per shipment and I understand some of the dynamics of the housing market and obviously moving in that context. But I guess I'm curious if we see sort of an industrial pickup and maybe tonnage does get a bit better, and maybe weight stays a little lower, does that impact the incremental margins you think you can put up in this business? I guess maybe a bigger picture question just zooming out is, how do we think about that weight per shipment? What it means and maybe kind of how it might play out over the course of this year, assuming there is some degree of improvement in the demand side?

Christopher Adkins, Chief Strategy Officer

Sure. So, hey Chris, this is Christopher. Yes, from a weight per shipment standpoint, like you said, the industrial production and manufacturing demand have been sluggish. That's been the case for a while. Truckload demand has been soft, and we are seeing and even participating in helping customers move the LTL business from LTL to truckload to help our shippers really take advantage of that market in its current state. The household goods moving business continues to be soft, and that has persisted into January just with the interest rates being higher than they have in the last couple of years. Those pressures we've experienced from a weight per shipment standpoint, and any one of those factors or all three of them recovering would be beneficial for us regarding profit. We want those things to happen, but we are well-prepared to manage it regardless of the profile we receive. We have strong operations, yield, and sales functions to ensure that we're maximizing the return we get. As Seth and Judy mentioned, the strong pipeline generated this year gives us confidence that we can continue to grow and outpace the market regardless.

Seth Runser, President

Hey Chris, this is Seth. I'll add to that. When you consider all parts of our business, both Asset-Based and Asset-Light, we work to build a scalable operation where we can take advantage of that operating leverage. The particulars on incremental margin would really depend on where the business is coming from, and we evaluate each opportunity to ensure that it contributes to our financial targets. We've invested significantly in our network, capacity, and productivity, and we have been very disciplined with our pricing actions, examining that on an account-by-account basis for maximum benefit. As the market turns, we expect good incremental margins with the volume we bring on because we price based on the value we provide. I feel good about that as the market starts to recover.

Chris Wetherbee, Analyst

Okay, appreciate it. Thanks very much.

Operator, Operator

Our next question comes from the line of Bruce Chan with Stifel. Please go ahead.

Bruce Chan, Analyst

Yes, thanks operator, and good morning everybody. Question here on the tech enhancements, specifically on the city route optimization and ABF. I don't know if that's through Maven or another provider if it's internal, but my rudimentary math here tells me that that's maybe worth 50 basis points of gross savings on the OR. Is that fair? And can you give us a rough sense of how much opportunity is left from additional phases of the rollout, again, maybe on the OR side?

Matt Godfrey, Executive

Good morning Bruce, this is Matt Godfrey. Yes, when we look at the city route optimization, we rolled out the initial phase throughout 2024, and we saw a return of about $1 million a month from that initial phase. Looking at the additional phases of city route optimization, the second phase focuses on enhancing the optimization tools from the initial phase, and the third phase concentrates on improving our daily pickup operations. We don't see as much runway in returns from the second and third phases as we did from the initial phase, but we expect positive results. We see significant benefits to our customers concerning pickups, especially regarding the ranking on the Mastio service. These projects are starting to build on one another, delivering both efficiency and enhanced customer experience. We will continue to invest in our training team of operational experts to expand that. We know that these improvements in efficiency and reliability position us for growth and support our strong pricing.

Bruce Chan, Analyst

Okay, that's super helpful, Matt. Just a quick follow-up on the share shift comments to TL in the prepared remarks. I think some of your competitors have discussed in the past that the overlap is actually pretty minimal, maybe in low single-digit percentages. I'd imagine maybe that's a little higher for you given your length of haul and maybe your weight per shipment. Is that fair to say? Do you have an estimate of what that overlap looks like?

Seth Runser, President

Yes, hey, this is Seth. The truckload market still has too much capacity, and we've seen where the rates are in the truckload space. That's caused some of the shipments on the fringe, that 7,500-pound to 20,000-pound freight that might typically work in an LTL network to shift into the truckload space. As the truckload market recovers, some of that freight fits better in the LTL network, and I think we'll see that shift back. This is more pronounced than previous shifts just because of the market weakness in truckload. Truckload carriers really don't prefer multiple stop runs. That freight is going to shift back eventually. As far as an actual impact, it's hard to quantify that, but it's not the bulk of our business. When it does come back, we’ll selectively bring back freight based on demand from our core customers.

Bruce Chan, Analyst

Got it. Thank you.

Operator, Operator

Our next question comes from the line of Stephanie Moore with Jefferies. Please go ahead.

Joe Hafling, Analyst

Great. Good morning and congrats on the good results. This is Joe Hafling on behalf of Stephanie Moore. Maybe keeping on the macro and weight per shipment question, how should we think about the ABF advantage? Said another way, if housing and construction come back, how would you frame ABF's ability to not just participate, but to specifically benefit? The competition isn't sitting on their hands, so what would give you guys the confidence to see outsized growth in that positive environment? Could you also speak to the 55% pipeline growth? What's driving that? Thanks so much.

Seth Runser, President

Yes, this is Seth. I think it benefits us quite a bit. Over the last two to three years, particularly at ABF, we've been focused on service, and we've seen our internal stats improve. Customers will value that service as things start to improve. The efficiency gains allow us to move more freight through the network at a better cost and velocity. All the efficiency gains we've achieved, paired with our organizational changes, position us to respond quickly as customers seek capacity in a shifting market. We're continuously optimizing our network, so I think as things shift, we're well-positioned to support our customers and give them growth opportunities. We're attentive to our customers, and we can align with them, which will help us significantly when market conditions improve.

Joe Hafling, Analyst

Great. And then on that 55% pipeline growth, what's driving that?

Seth Runser, President

Yes, the 55% pipeline growth relates to our sales team executing on our objectives. Keep in mind, not every opportunity that comes through the pipeline makes sense for the business. We need to ensure we're pricing it for the value we deliver. This pipeline growth serves as a lead indicator for future potential, indicating that customers are approaching us for solutions amidst current market disruptions. It reflects a positive outlook about our service quality and reliability.

Operator, Operator

Our next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

Ken Hoexter, Analyst

Hey good morning Judy and team. You mentioned a couple of things. You mentioned CapEx. You're adding 113 doors, I guess, real estate CapEx of $60 million to $80 million. Are you looking at any remaining auctions from Yellow? And is there any region you're filling in? Or does it just remain continued expansion of existing door capacity? And then just a second, I guess, follow-up from some of the previous questions. You mentioned the volume is down 11% in January. Can you parse what was weather? I guess, it sounds like you're sending a little bit more negative kind of feedback on the state of the market and even kind of the commentary on still too much capacity in the truckload, whereas some of them are mentioning that the capacity is starting to thin out. So, just trying to understand kind of the backdrop that we're seeing right now. Thanks.

Matt Beasley, Chief Financial Officer

Hey Ken, this is Matt. On the capital side, the $60 million to $80 million of real estate capital includes a mix of expansion and a new facility that we're building. We've got some general maintenance on our real estate portfolio in that amount as well. It's fair to say we're continuing to follow the Yellow process, and if opportunities arise that make sense for our business at the right price, we will participate. Regarding January, I don't believe we were highlighting anything negative beyond the weather, which was the highest number of service center closures since 2014. This did impact results for us, but the days that weren't weather-impacted were encouraging. So we see potential for sequential improvement given normal conditions.

Ken Hoexter, Analyst

Great. Thank you.

Operator, Operator

Our next question comes from the line of Ari Rosa with Citi. Please go ahead.

Ari Rosa, Analyst

Hi good morning. I just wanted to ask a question about the Asset-Light segment. Maybe you could give some color. We've seen here a couple of quarters in a row where margins have been negative in that segment. Can you provide some details on why that is? What's the challenge holding that segment back from achieving profitability? I understand the macro headwinds but should we think of this business as incapable of achieving profitability in a challenging macro environment? Or are there things that you can do structurally to improve it? We see efficiency metrics you pointed to this quarter look encouraging, but the negative margins continue to be a challenge. Help us unpack that, please. Thank you.

Seth Runser, President

Yes, thanks Ari, this is Seth. I feel confident we can get Asset-Light to a better place and achieve profitability regardless of market conditions. We're focused on improving those results, and it's a priority of mine in this new role. We can enhance profitability by better managing our account base, although we've been challenged by the macro environment, but we can do better. We're actively identifying accounts and taking corrective actions that should become evident as we move through the bid season. Secondly, the mix of our truckload business heavily weighs towards enterprise business, typically lower margin. We're investing in a team focused on growing the small and medium market segments. This shift will help our overall mix. The third focus is on cost control. We've taken cost actions recently, and we expect to see progress as we move through the year. Fourthly, our managed solutions continue to show growth even in this cycle. Managed growth is in double digits, which strengthens our offerings. Also, we are ramping up productivity improvements in Asset-Light. There's more to do, and I’m excited about our tech roadmap. Finally, we have a dedicated team committed to our customers. I believe we’re on the path for improvement in 2025 for Asset-Light.

Operator, Operator

Our next question will come from the line of Jeff Kauffman with Vertical Research Partners. Please go ahead.

Jeff Kauffman, Analyst

Thank you very much and congratulations. I want to ask another question on Asset-Light, if I can, because I feel like the LTL business has received a lot of questions. Listening to your commentary from last question, should we think of $1.5 billion in revenue as breakeven in the Asset-Light business? You need to generate growth and do things to make money in Asset-Light? Or maybe another way to think about it is what type of margin do you believe this business should produce if revenues don’t grow? For a long time, the concept was to pursue acquisitions and grow Asset-Light, which may one day exceed 50% of revenue. It feels like that momentum has stalled a bit. Looking at the broader strategy, what do you envision for Asset-Light's contribution to the bottom line?

Matt Beasley, Chief Financial Officer

Yes, thanks Jeff for the question. We're focused on a premium experience for our customers, and having a broad suite of solutions is essential to addressing their logistical challenges. If you assess our progress, particularly the managed side, we're successfully growing business solutions that feed into both Asset-Light and Asset-Based solutions. Rather than focusing solely on breakeven, we’re concentrating on margin; we're actively reviewing the upcoming bid season to ensure we’re well-calibrated in margins for the business we target. We continue to utilize productivity, technology, and efficiency initiatives to ensure the cost structure aligns with our revenue. We believe the Asset-Light business remains integral to our overall solutions, and returning it to profitability is a critical focus for us this year.

Operator, Operator

Our next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

Scott Group, Analyst

Hey thanks. Good morning. Given the monthly volatility in tonnage and yield trends, could you provide any directional thoughts on LTL revenue in Q1? Last year, you had a bigger tonnage decline than anyone and a bigger yield increase. So, with 2024, what are we targeting outside of just waiting for macro improvements? Are we anticipating better yield, better tonnage? Also, realistically, when do you think we can start seeing margin improvements again?

Matt Beasley, Chief Financial Officer

Yes. Thanks, Scott. The first quarter typically tends to be a softer quarter for us on the Asset-Based side. Based on our 10-year history, we estimate a revenue per day decrease of about 4% from the fourth quarter to the first quarter. We’ve taken the initiatives mentioned and unless we see significant weather impacts as we move into February or March, we believe we have some potential to outperform that historical trend. Overall, in 2025, as we consider improvements in the industrial economy and progress in customer-facing initiatives, we expect shipment counts to rise, which will aid tonnage. Consequently, while managing pricing strategies suggests upward movement in margins.

Scott Group, Analyst

Okay. Thank you.

Operator, Operator

That concludes our question-and-answer session. I'll now turn the call back over to Amy Mendenhall for closing remarks.

Amy Mendenhall, Vice President, Treasury and Investor Relations

Thanks to everyone for joining us today. We certainly appreciate your interest in ArcBest. Have a great day.

Operator, Operator

Everyone, that will conclude our call today. Thank you all for joining. You may now disconnect.