Earnings Call Transcript
ARCBEST CORP /DE/ (ARCB)
Earnings Call Transcript - ARCB Q2 2021
Operator, Operator
Greetings, and welcome to the ArcBest 2Q 2021 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded on Monday, August 2, 2021. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead, sir.
David Humphrey, Vice President of Investor Relations
Welcome to the ArcBest second quarter 2021 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President and Chief Executive Officer of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. We thank you for joining us. In order to help you better understand ArcBest and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risks. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release and the Company's most recent SEC public filings. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Judy.
Judy McReynolds, Chairman, President and CEO
Thank you, David, and good morning, everyone. As you saw in our release, our second quarter revenue increased 51% over the second quarter of 2020, when we were impacted by the economic factors of the COVID-19 pandemic. I am very pleased to report that we achieved the highest quarterly operating income in ArcBest’s history and record quarterly revenue, and we've had our best first half ever in terms of consolidated revenue and operating income. These records reflect our success with customers as a leading logistics company with assured capacity options. So far this year, we are experiencing strong customer demand, resulting in shipment and tonnage growth and a very positive industry pricing environment. On a non-GAAP basis, our second quarter Asset-Based operating ratio was in the 80s for the first time in many years, and our Asset-Light profits grew substantially. As we enter the third quarter, customers continue to experience high levels of supply chain disruption, and we are effectively adapting our approaches to their needs. 2021 has been the year for customer conversations regarding the best holistic solution for their supply chain, and our strategic positioning over the last decade enables us to grow with them as their businesses recover. We have a data-driven approach, and the visibility we have ensures proper alignment of ArcBest’s resources with customer requirements. We are focused on listening to our customers, which helps us be more agile and responsive and to know when it's necessary to pivot to new solutions. As I mentioned, we anticipate growth in our business. Our opportunity pipeline has grown significantly year-over-year through the first half of 2021 and accelerated sequentially in the second quarter compared to the first. Customer win rates are reaching all-time highs. In order to address this growth and serve our customers, we are increasing hiring and recruiting efforts, optimizing the ABF network, including linehaul, dock and city operations, taking delivery of new ABF equipment and placing 2022 orders early, expanding ABF facilities through investments and upgrades, increasing recruiting resources and equipment for our expedite and truckload fleets and investing in various technologies, including those to make it easier to match shipments with available capacity. Speaking of technology, we continuously invest in technology and innovation to improve operations and further enable a best-in-class customer experience. Innovation is more than a mindset for us; it's simply part of everything we do. And now, I'll turn it over to David Cobb for his comments.
David Cobb, Chief Financial Officer
Thank you, Judy, and good morning, everyone. Just as a reminder, our year-over-year comparisons to last year's second quarter were significantly impacted by the effect of the pandemic, so I want to begin with some consolidated information. Our second quarter 2021 consolidated revenues grew 51.3% to $949 million compared to $627 million in last year's second quarter. On a GAAP basis, we had second quarter 2021 net income of $2.27 per diluted share. This compared to net income of $0.61 per share last year. As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release, our adjusted second quarter 2021 earnings per diluted share grew 194% to $1.97 compared to $0.67 per share in the same period last year. ArcBest's second quarter 2021 effective GAAP tax rate was 17%. During the second quarter, the rate was impacted by several items identified in the effective tax rate reconciliation included in tables to the earnings release. Large discrete items included the sale of a portion of the Asset-Light moving business, the settlement of share-based payment awards vested during the quarter and changes in the cash surrender value of life insurance. For the first six months of 2021, the effective tax rate on a non-GAAP basis, which was used to calculate the non-GAAP EPS, was 27%. Under the current tax laws, we expect our full year 2021 non-GAAP tax rate to be in a range of 26% to 27%. Of course, the effective GAAP tax rate may be impacted by discrete items that could occur during the remainder of the year. We ended the second quarter with unrestricted cash and short-term investments of $423 million and total debt of $238 million, resulting in cash net of debt of $185 million, an increase of $100 million since the beginning of the year. Our debt at the end of the second quarter, which totaled $238 million, includes the $50 million balance on our credit revolver and $188 million of notes payable, primarily on equipment for our Asset-Based operation. The composite interest rate on all of our debt was 3%. Our cash and short-term investments combined with available resources under our credit revolver and our receivable securitization agreement provides total liquidity of $662 million. The increase in our net cash position is primarily driven by solid operating results and the timing of capital expenditures. The original build schedule as well as delays from manufacturers for our Asset-Based and Asset-Light revenue equipment has the majority of the units being delivered in the second half of the year. As a result, our capital expenditures, net of asset sales, totaled only $15 million for the first six months of the year. We currently expect net capital expenditures to range between $160 million and $170 million for the year, so we have some catch-up coming in the second half of the year. That CapEx range includes some additional facility upgrade opportunities that we plan to complete in 2021. Last quarter, we also mentioned an accelerated view of our 2022 revenue equipment plans in order to increase our fleet in support of customer demand. As Judy described earlier, investments and upgrades in our Asset-Based network are a priority. Our customer management structure, technology platform, our leading yield management program, combined with logistics solutions together placed ArcBest in an increasing number of customers' supply chain conversations, thus improving customer retention. These factors have driven us to have greater confidence in our shipment and revenue growth through business cycles. We recognize that we have opportunities to invest in our facility capacity that will generate solid returns. In the last year, we have moved into a new lease distribution center in Kansas City. We have committed to another distribution center in Salt Lake City. We're currently working on expanding and updating 10 other leased and owned locations. We are also expecting to allocate additional resources in the range of $50 million to $75 million on an annual basis above our historical CapEx levels toward expanding existing service centers as well as upgrades that would also improve energy efficiency. As I mentioned, a portion of our investments are included in our updated 2021 CapEx, but many of these projects are longer term and will impact 2022 and future years. As we have discussed before, we are seeing our customer-centric approach of providing logistics solutions pay off as more customers increasingly rely on our team for supply chain expertise. ArcBest acts as a trusted partner in understanding and responding to our customers' needs. This approach allows us a more strategic perspective that we can leverage on our customers' behalf through intelligent analytics and access to capacity across multiple modes of transportation, whether through our own assets or through other providers. So, continued technology investments and capacity additions advance our ability to serve these needs. Likewise, we are staying close to transactions in the logistics space and are mindful of the opportunities that acquisitions can provide to add scale to our platform for serving our customers' capacity needs. Along with these opportunities to invest in positive net present value projects, we continue to return capital to shareholders with a dividend program and share buybacks. These are good opportunities for utilizing excess cash as we believe that our share price is undervalued and should trade higher. Earlier this year, we exceeded our share repurchase program, and we repurchased $7 million of our stock during the second quarter. Full details of our GAAP cash flow were included in our earnings press release. Our Asset-Based second quarter revenue was $653 million, an average daily increase of 42% compared to last year. The second quarter non-GAAP operating ratio in the Asset-Based business improved 440 basis points sequentially versus the first quarter of 2021. But adjusting for the large property sale gain in the first quarter, the Asset-Based business produced a 600 basis-point sequential improvement. Asset-Based quarterly total tonnage per day increased 22.7% versus last year's second quarter. For the second quarter of 2021 by month, Asset-Based daily total tonnage versus the same period last year increased by 28.9% in April, increased by 21.3% in May, and increased by 18.7% in June. Second quarter total shipments per day increased by 13.5% compared to last year's second quarter. Second quarter total billed revenue per hundredweight on Asset-Based shipments increased 15.4% and was impacted by higher fuel surcharges versus last year. Revenue per hundredweight on LTL-rated business, excluding fuel surcharge, improved by a percentage in the mid-single digits. We secured an average 6.7% increase on Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter, which was one of the highest second quarter increases we've had in many years. This compares to the 5.6% increase we secured on these customer pricing agreements during the first quarter. Preliminary business trends for July have been provided in the Form 8-K exhibit to the press release. July daily average tonnage and shipments were above the prior year month by percentages in the mid-single digits. As previously mentioned, the Asset-Based business managed an elevated level of household goods, U-Pack shipments during the second quarter. These shipments are larger than the typical LTL shipment and stay in our system longer. As customer demand for our core LTL services continues to strengthen, we have moderated the number of these U-Pack household goods shipments as well as other spot-quoted shipments in order to serve our growing base of principal customers. As a result, the sequential change in daily average tonnage from June to July was below our historical average because of this greater than average sequential decline in these heavier U-Pack and spot shipments. Importantly, for our core LTL business, the sequential changes in average daily tonnage and revenue per shipment were higher than historical averages. As a reminder, beginning in mid-third quarter of 2020, we experienced significant demand in year-over-year growth in these larger U-Pack shipments. Going forward, our tonnage and shipment comparisons to the prior year are expected to be impacted by this unique element of our business as we continue to manage the network to serve our customers and optimize revenue. In total, the revenue in ArcBest Asset-Light businesses increased 67% versus last year's second quarter, reflecting strong demand in our ArcBest segment and improved events and revenue per event in the FleetNet segment. Second quarter Asset-Light operating income was $16.3 million compared to $2.1 million last year. We sold the labor services portion of the ArcBest Asset-Light segment’s moving business during the quarter, resulting in a gain of $6.9 million. On a non-GAAP basis, excluding the gain on net sales, second quarter Asset-Light operating income was $9.3 million. Second quarter of 2021 Asset-Light EBITDA was $19 million, including the benefit of the moving business sales compared to EBITDA of $4.9 million in second quarter 2020. Preliminary Asset-Light business trends for July have been provided in the Form 8-K exhibit to the press release. That Form 8-K that was filed this morning with our earnings release included an exhibit that I mentioned which includes some additional information about our current quarterly financial results along with our recent business levels and our future expectations on certain financial metrics. Now, I'll turn it over to Judy for some closing comments.
Judy McReynolds, Chairman, President and CEO
Thank you, David. Over the past several years, we purposely integrated our solutions so that we could more effectively serve and partner with customers. This approach is serving us well and driving growth as we strengthen relationships with customers and carrier partners while also creating new relationships. We are one of only a few full-service logistics companies with both asset and asset-light capacity sources, and we have almost 100 years of experience adapting to changing customer needs. Today, we are well-positioned to meet those needs and exceed their expectations. It's important to us that we meet the customers where they are and in the channels they desire. Looking forward, we know the rate of change will continue to accelerate, but we are demonstrating agility that is enabled by listening to them. The customer desire for unique logistics solutions is very important, and staying closely in tune with expectations as they evolve will position us for continued success. We are confident in our strategy and the underlying strength of our business, and we're focused on positioning ArcBest for long-term growth in any environment. As I mentioned last quarter, we've taken several steps toward developing a more robust environmental, social and governance program. As an update, we are currently compiling our latest ESG report. We've hired a corporate social responsibility program manager. We are developing our diversity, equity, and inclusion strategy and road map. We are consolidating our data into a more usable format so that we can establish environmental goals, and we are undergoing a materiality assessment project. Our goal with the assessment is to prioritize our long-term initiatives across all aspects of ESG. We strive to be a responsible corporate citizen in all of our communities, and we've always been committed to conducting business in a highly ethical way. We are committed to more publicly documenting our actions in regard to sustainability, employee well-being, community involvement, governance, and ethics. I also want to say a word about our team members. Our people drive our success, and they are the strength of our value-driven culture, creating a differentiator for our Company. I'm very thankful for our thousands of great employees who are dedicated to helping customers and living out our values every day. And now, I'll turn it over to David Humphrey for our question-and-answer session.
David Humphrey, Vice President of Investor Relations
Okay. Frank, I think we're ready for some questions.
Operator, Operator
Our first question comes from Jason Seidl with Cowen and Company. Please proceed.
Jason Seidl, Analyst
Thank you, operator. Judy and team, I hope you guys are well this morning. I wanted to get a sense for this U-Pack business, which you guys were saying is going to roll over a bit on comparisons. Without putting any direct numbers on it, how should we think about the profitability of that type of business versus your traditional core network business?
Judy McReynolds, Chairman, President and CEO
Well, we typically haven't disclosed that specific information about really any of the segments of business. But, what I would point out to you is historically for many, many years, I think we developed that business back in 1997. Its peak season has been one that begins maybe in late April and runs through mid-September, something like that, just like what you would normally think. And I think, one reason why we bring it up is because the trends have really shifted since the pandemic, and we've experienced some strength in periods where we typically wouldn't. And it's a spot-quoted business. It's a truckload-graded, spot-quoted business that when combined with our non-U-Pack residential shipments tends to equate to about 11% or 12% of our shipments. That's been fairly consistent over many, many years. But I think what we're pointing out is as our published business, our core LTL business strengthens, again, this is a spot-quoted business, so we can manage it. And we have managed it down some whenever you look July to June. And I just think that's important whenever you're looking at the sequential trends. And incidentally, the core business trends are very good. So, we wanted to make sure that we gave you that color so that you could understand the demand strength that we're experiencing.
Jason Seidl, Analyst
All right. So, all in all, a good thing, because you have the strength in the core business?
Judy McReynolds, Chairman, President and CEO
Well, yes, I think so. And when you look at all of our business options, we have more than ever. And it's interesting how we can work through that in a way that optimizes the business that we would like to. And it's fortunate for us that we have these spot-quoted businesses that we've experienced good success from, for all these years.
Jason Seidl, Analyst
Okay. That's great color. On a follow-up, David, you talked about additional CapEx for improving a lot of the facilities. You said $50 million to $75 million above normalized levels. You said it's going to be definitely in '22; is this going to continue beyond '22? And is it all facilities or just on the non-asset-based logistics side?
David Cobb, Chief Financial Officer
We're seeing a significant opportunity in our long-term business. Customer insights are a part of it, but we have implemented various changes over the years regarding technology and the structure of our customer management team, as well as our yield programs. This is all tied to our confidence in our growth potential. I suggest that the estimated figure of $50 million to $75 million is an annual projection. The timing for this remains uncertain; we haven't determined how much will be realized in 2022 yet, but we will provide updates as more information becomes available. Most of this will focus on upgrading our Asset-Based network facilities, with the aim to expand many of them. There are plenty of opportunities, but some real estate projects may take longer to initiate, and in some cases, we may need to consider leasing facilities that we would prefer to purchase. Hopefully, this clarifies things.
Jason Seidl, Analyst
No, it does. And I’ll look forward to the updates on just how many facilities you’re upgrading and the type of door expansion we’re looking at.
David Cobb, Chief Financial Officer
Thanks a lot, Jason. I appreciate it.
Operator, Operator
Our next question comes from Ken Hoexter with Bank of America. Please proceed.
Ken Hoexter, Analyst
Great. Hey, Judy and Dave, congrats on the best OR in 15 years. It's definitely impressive. You did note in the 8-K that the third quarter should be similar OR and stay in the 80s. Maybe just give your thoughts, Judy, or Dave, on sustainability at this level, and thoughts going forward?
Judy McReynolds, Chairman, President and CEO
Yes. Well, first of all, Ken, I want to point out that we gave you the history there. We're not actually giving you the guidance of that. But, I know where you're coming from. And we do have good confidence about our business and the customer demand and the opportunities that we're working through. When we look at our overall business, it's really interesting the way that it's evolved, particularly with our strategic direction that we've had over the last 10 years. When we approach customers, we approach customers as a logistics company. And we see the opportunities really are growing. And it's interesting. In those conversations, it's great to be a company that is very capable. In other words, we have multiple ways that we can achieve a result for a customer. But, it's also important to have the assets involved in that conversation. And it's really the overall logistics approach that's bringing us these opportunities and increasing our confidence in terms of both profitability and retention.
Ken Hoexter, Analyst
Thanks, Judy. And just then, your thoughts on the capacity there being added, right? So, you're adding, others are adding capacity. Do you think that hurts over the long term in terms of what you need to take, or do you see a secular change here in LTL demand going forward?
Judy McReynolds, Chairman, President and CEO
I really think that there could be. I mean, it looks as if there's a change in secular demand. Hopefully, that's one that spans the test of time. But I know right now, there's a great demand for our network resources, and we're very focused on utilizing those in the best possible way. And we're seeing this growth in e-commerce. I think the digital adoption by consumers and businesses over the last really, even in the last year is pretty exciting. And then, I think the growth that's coming from the industrial side is also something to take note of as well. But, sometimes it just boils down to who's able to be the most reliable. And I think our model with our low turnover in a relative sense in terms of drivers and the consistency and availability of our resources to serve customers is something that's going to continue to be very important, as we go through the next several years.
Operator, Operator
Our next question comes from Jack Atkins with Stephens Incorporated.
Jack Atkins, Analyst
Okay, great. Good morning. Congrats on a great quarter here. So, I guess, Judy, let me kind of ask you about capital allocation for a moment. You guys have about 11% or 12% of your market cap in net cash right now on the balance sheet. I know there are a lot of opportunities to invest in the business. But I guess, don't you have the flexibility also to maybe be a bit more aggressive on the buyback? I was just curious to understand why you guys aren't being more aggressive, given the significant discount you're trading at relative to historical averages and your non-union peers?
Judy McReynolds, Chairman, President and CEO
Well, I think, the basic answer to that is, that is a part of our overall capital allocation program. We have certain targets. I think we've got $42 million left on our share repurchase that we have available to use and we intend to use it and as well as our dividend. And we've outlined, I think David went into a pretty significant amount of detail in his prepared remarks about the uses of capital that we see. And what we're describing is what for us is a good investment backdrop for use in our Asset-Based business in terms of increased level of spending for equipment and some increased levels of spending on real estate. Now, realize, we're in the places that we should be. We're a mature company. We have facilities that are well-placed, but we do have expansion needs. We have some upgrade needs. We also see an opportunity to advance in the environmental area and create some efficiencies in some of these facilities. So, we really feel like, from an investor point of view, those are of interest as well. And so, our plan is to have some of our resources used for an increased level of capital spending and a more purposeful approach I think as we march forward on real estate. And then, also, we maintain some level of capital in the event that we find a strategic acquisition opportunity that allows us to add scale. And because we see that scale is needed and we would benefit from that. So, really, all those things are on our minds as we're thinking about capital allocation.
Jack Atkins, Analyst
Okay. No, I appreciate that insight there. I guess, for my follow-up question, I would just be curious, speaking of areas where you can invest in the business, if you could maybe provide us an update on your technology and efficiency initiatives related? I think it's in Kansas City and in Indianapolis. When do you think we're going to be able to kind of get a greater insight into the impact that could have on the business and the potential to scale that over the next several years?
Judy McReynolds, Chairman, President and CEO
Yes, we are optimistic that we will have a few more quarters to continue the pilot, especially in Kansas City, before discussing our rollout plans there. We are meeting our targets at the facilities in Elkhart and Indianapolis, where the other two pilot projects are located. The Elkhart facility is focused on end-of-line operations, while Indianapolis has a larger city operation. In Kansas City, we are testing a distribution center. These three facilities are necessary for our pilot work, which involves equipment, software, and the training and development of our team. We remain very excited about the entire process and recognize the value we could achieve if we manage the pilot effectively, conduct the necessary testing, and then gradually implement it across the company. I'm pleased you inquired about this, and we look forward to sharing more updates as we progress.
Operator, Operator
Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed.
Christyne McGarvey, Analyst
Good morning. This is Christyne standing in for Ravi Shanker. I appreciate you taking my questions. I’d like to take a step back and revisit some comments about demand. You seem confident in the outlook going forward. Can you share what is driving that confidence? How are the conversations with customers going? I'd also like to hear about the inventory situation and your expectations for demand for the rest of the year and possibly into early next year.
Judy McReynolds, Chairman, President and CEO
Yes, we are having fantastic discussions with customers. A few years ago, we positioned ourselves as a logistics company, and 2021 has been the perfect time for these discussions. Customers are experiencing various disruptions in their supply chains. Because of this and their future planning, they are open to conversations focused on holistic solutions that we can offer. Our integrated approach and the various modes we use allow us to assist them, even in the short term, with our network assets or expedited ground equipment. This creates great opportunities for dialogue with our customers. Some are still facing challenges with inventory levels, and their perspectives are shifting. However, many are looking for a trusted partner to help them plan as they anticipate moving beyond current disruptions. Our logistical approach encourages more multi-modal, long-term conversations. Often, this includes assets, but it doesn't have to. I'm increasingly satisfied with our strategy that starts with discussing our Asset-Light solutions, a shift from earlier days when we would prioritize our assets. I believe our customer management team has effectively elevated the conversation for the benefit of both the customer and us.
Christyne McGarvey, Analyst
Got it. That's very helpful to think about. Maybe if I could squeeze in one more. I just want to circle back to the capacity conversation, maybe particularly around the labor side of things. I think kind of availability on that front has been a big theme this quarter. So, maybe you guys can touch on what you guys are experiencing. I imagine that the union agreement right now is actually quite helpful. Maybe you can touch on if you expect to do anything sort of around the edges with hiring bonuses, you mentioned kind of recruiting, picking up the recruiting type of things. So, I think that would be helpful as well.
Judy McReynolds, Chairman, President and CEO
Yes. We are challenged by that as I think everyone in our industry is, but we are making progress. We've hired net of around 500 people in our Asset-Based business, and we've got close to 2,000 that are in the process. So, things are going well. One of the things I always like to mention when we talk about this is our arrangement that we have to bring on soldiers that are retiring from the military. It's a partnership that we have with the Teamsters and the military. And we've hired almost 600 people through that program over the years, and it has been great for us. And I hope that every soldier that we've hired would say that it was great for them because we put a lot into that. But, we really appreciate our partnership there. And yet, as I say that, we still have a lot to do. We still have many folks that we would like to hire. Now, some of that is going to replace an elevated level of purchased transportation that we have. We're at high levels of utilization of rail and other purchased transportation. And that's not necessarily all bad from a cost-per-mile standpoint. But, we know, from an overall customer experience standpoint that we like to move shipments through the network, using our own resources for the most part. And so, it's great to have those partners and that variable resource. But, as we hire people, you may see probably later in 2021 and into '22, before we see a reduction in those purchased transportation levels. But, that's something that we devote a lot of time and energy to. We're hiring more resources in terms of recruiting to help us address it. And I think, our digital marketing strategies are working pretty well as well, so. But anyway, I hope that answers your question, Christyne.
Operator, Operator
Our next question comes from Chris Wetherbee with Citi. Please proceed.
James Ronnigan, Analyst
Good morning, guys. James on for Chris. I just wanted to touch on the tonnage trends a bit more and what you were seeing in your core LTL business. The trend basically seems a bit negative in terms of comps, but just wanted to get an indication of what you're seeing or expecting in August, and maybe through the rest of the year?
David Cobb, Chief Financial Officer
Yes, this is David. I'll provide some insight into what we're observing. Last year, we experienced significant growth in larger shipments, particularly with our unique U-Pack service. These shipments are much larger than typical LTL shipments. Starting in the mid-third quarter last year, demand for this service rose to historical levels. Moving forward, we will be comparing against the heavier shipment weights we had last year. For instance, our weight per shipment in July is trending down slightly compared to June, mainly due to large accounts, but we're managing this decline as demand for our core LTL accounts has increased. The weight per shipment in our core LTL business remained essentially flat in July compared to June. Traditionally, we observe a slight decrease from June to July, but we're seeing strong revenue and revenue per shipment in our core business. Our core customers are returning, we're gaining new customers, and we're retaining them at a higher rate than before. This is largely due to the visibility and various solutions we offer to our customers. All these factors are contributing to the growth in our core LTL business as we proceed. I hope this helps clarify the current dynamics.
Christyne McGarvey, Analyst
It does. To follow up on that, the revenue per hundredweight declined 2% sequentially. Considering the size of the businesses, should we expect this to be a continuing trend, or was there a significant drop at the beginning of July, with the decline leveling off since then? Can we expect to exceed that level as our run rate moving forward? Is that the correct way to approach this, or are we facing tougher comparisons that may create further challenges?
David Cobb, Chief Financial Officer
This comparison to the larger shipment activity becomes more challenging as we move forward because the U-Pack business essentially disappeared in the second quarter of 2020 but returned in the third quarter with some fluctuations. So, yes, that comparison will become tougher as we progress.
Operator, Operator
Our next question comes from Jordan Alliger with Goldman Sachs. Please proceed.
Jordan Alliger, Analyst
Just a quick follow-up on purchased transport. I'm just sort of curious, in the environment we're in with the supply chain, I mean, how hard has it been to ensure sort of the third-party capacity that you need? And then, I know as you're hiring more people, that should lessen. Do you have any sense when we might see an inflection around purchased transport sort of going the other way? Thanks.
Judy McReynolds, Chairman, President and CEO
Thank you. Well, we have not experienced difficulty in accessing that resource. The only thing I'd say about it, though, is that what goes with it and is sometimes whatever service issues they might be having as well. So, you have to accept some of that whenever you use a third-party resource and we do. And what I would suggest to you is because of where we are with hiring, and I know the demand needs that we have in the business, I would suspect that for the year of 2021, we're going to have this elevated level. And so, hopefully, towards the end of the year, we were able to pare that back some. But, I don't want to mislead you into thinking that it's going to be significantly better at some point this year. So, I really anticipate that it's going to continue.
Operator, Operator
Our next question comes from Bruce Chan with Stifel. Please proceed.
Matt Milask, Analyst
This is Matt on for Bruce this morning. I just want to echo the congrats on a great result in LTL. And maybe on that note, can you just remind us how the profit sharing scale works at ABF, and perhaps what the big OR threshold might be? And as a follow-up, we've heard a lot about hiring and retention challenges in the market. Do you think the profit sharing measures specifically have been making it easier for you to recruit in this market? Thanks a lot.
David Cobb, Chief Financial Officer
I believe our Asset-Based business offers one of the most competitive compensation and benefits packages in the industry, which should aid our recruitment efforts. This has also contributed to our low driver turnover rates, among the lowest in the industry. It's encouraging that our employee-focused programs, including a favorable health and welfare program and pension benefits, are gaining recognition from investment firms for promoting workforce sustainability. While our costs are higher than industry averages, they’re reflected in our results and should show less inflation compared to others at this time. Additionally, we have a union incentive in the current contract, and we've included more details in our earnings release regarding its structure and the incentive levels at specific operational ratios. It's important to note that we’re only halfway through the year, but looking at our year-to-date operational ratio can be helpful. The Asset-Based GAAP operational ratio through the second quarter was 92.2%, compared to 96.5% year-to-date in 2020. If the ratio drops below 93%, we incur a 3% incentive. Each percent translates to an incentive amount of about $5 million to $6 million for the union, which we are accounting for as a percentage of Asset-Based profit throughout the year. I recommend that those modeling our expenses consider this metric and our performance as you make your projections. Does that clarify things, Matt?
Matt Milask, Analyst
Absolutely, it does. Thanks for the color.
Operator, Operator
Our next question comes from Stephanie Moore with Truist. Please proceed.
Stephanie Moore, Analyst
One of the questions I had, and Judy, you mentioned this in one of your responses already, but you just talked about the benefits of offering the full suite of logistics services and how that sets you apart from your competitors. Do you have any KPIs or metrics we could review regarding customer retention or the number of services customers are using now compared to before, especially considering how volatile the last year has been? I'm sure many customers have grasped the value proposition, but any updated metrics would be very helpful. Thank you.
Judy McReynolds, Chairman, President and CEO
Yes, that's great thinking. When we look at our retention, it's really impressive. For accounts that are cross-sold, our revenue and profitability are typically 7 to 9 times higher. This creates significant value for both us and our customers. Currently, about 35% to 36% of our active accounts have been cross-sold, and around 16% to 17% of our revenue comes from what we refer to as a secondary source. For instance, a customer may start as an LTL customer and later utilize truckload services. Interestingly, we are increasingly seeing customers start with truckload services and then seek LTL as a secondary option. When we analyze the revenue from this cross-selling over time, we feel very optimistic and excited about it, as it positively impacts our retention rates. Another notable trend is that many Asset-Light customers, who begin with truckload or expedited services, eventually use our LTL network as well. This is largely due to the coordination we offer, such as consolidating freight into our network for delivery. Customers appreciate having reliable options, and the way we've structured the company supports that need.
Operator, Operator
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Scott Group, Analyst
I was wondering do you think that the pricing trends should continue to accelerate into the back half of the year? Do you see potential for a second GRI this year?
Judy McReynolds, Chairman, President and CEO
That's a good question. Really, what we're experiencing is, I think, historic in terms of some of the price levels. And I'll remind you that we've been on this path of really trying to address some of our accounts since 2017. And so, we built to displace, which is I think I'm very thankful for that because of the environment that we're in. But most of the time that we're spending, Scott, is on really looking at the opportunities that we have, kind of evaluating what will work best for the customer and for us. We have more visibility than ever on where freight is needed and what works well for us. And that enters into this whole conversation as well. But, it feels like a strong environment. I think, certainly, we've always been in that place. And I anticipate with the demand levels and the conversations that we're having today for it to continue in that strong area for a while.
Scott Group, Analyst
Okay. Can you just talk about the expedited trends in July? And how those trended relative to normal seasonality versus June?
David Cobb, Chief Financial Officer
This environment is favorable for our expedite business, and we are grateful for the ability to offer that service. This enhances all our service offerings and broadens our logistics opportunities. We noted strength in expedite, as mentioned in the release, and this has continued into the first quarter and July. Our significant revenue growth in July includes contributions from the expedite business. It will be interesting to see how auto demand evolves and how manufacturing and auto plants operate for the rest of the year. There seems to be unmet demand for certain products, which could be a positive factor as we move forward. Does that clarify things, Scott?
Scott Group, Analyst
It does. And if I can just ask one last thing. When you talk about upgrading the network, is there a way to put a rough number around, like the door count increase or terminal count increase? And maybe just talk about when was the last time you did something like this? Thank you.
Judy McReynolds, Chairman, President and CEO
Well, we've always addressed our facilities based on the demand levels that we've seen. What we've typically done is add doors whenever we have a consistent level of business that leads us to that being the right decision. But, one of the things that I think this environment and what we are hearing from customers helps us with is just greater confidence in that business level or that demand continuing into future years. And I think David gave you the information on the dollars that he anticipates. But David, do you want to add anything to that?
David Cobb, Chief Financial Officer
The capacity that could be added will depend on several factors, including site selection and timing of those projects. Our current target is to achieve an increase of about 5% to 10% in door counts over the next 18 months. We also see opportunities to enhance productivity through our existing doors as we move forward. Does that help?
Scott Group, Analyst
Very helpful. Thank you, guys. I appreciate the time.
David Humphrey, Vice President of Investor Relations
Thanks, Scott. We've got a couple more we want to try to get in. So, go ahead, Frank.
Operator, Operator
Our next question comes from Todd Fowler with KeyBanc Capital Markets. Please proceed.
Zach Haggerty, Analyst
Hey. Thanks. Good morning, everyone. This is Zach on for Todd. I just want to go back to the U-Pack and the spot. I just want to go back to the percentage of mix for U-Pack and spot. I guess just what is that percentage kind of on a normalized basis? And I guess, do you guys see that moving towards a normalized level, and then maybe moving past this core continue to pick up? Just like to hear your thoughts there. Thanks.
Judy McReynolds, Chairman, President and CEO
On a shipment basis, the non-U-Pack residential percentage is 11% to 12%. Yes.
Christyne McGarvey, Analyst
That's current. But, I guess, more normalized, what would that number be?
Judy McReynolds, Chairman, President and CEO
That's the normalized number.
Zach Haggerty, Analyst
Okay. Got it. And then just, I guess, higher level on the Asset-Light piece. I guess, in the past, you guys have seen about 5% operating margin. Longer term, I guess, what are the big levers you guys can pull to maybe move towards that number in 2021 and then maybe 2022?
Judy McReynolds, Chairman, President and CEO
We have made progress and intend to make more. In our growing business, there are fixed costs and some costs that require hiring in advance to benefit from them. Consequently, we have hired many individuals this year. We expect that over time, perhaps in six months to a year, these new hires will achieve a level of efficiency that will be beneficial. As we scale our business, it assists us in managing fixed costs. Increasing revenue will aid in improving our bottom line due to the fixed cost structure. Our fixed costs are higher than anticipated because of our investments in technology to enhance our digital capabilities. However, the key points are growth and increasing revenue, which applies across all our Asset-Light business lines.
David Humphrey, Vice President of Investor Relations
All right. I think, we've got one more. So, if we can get to them, we'll try to wrap this up.
Operator, Operator
Our next question comes from Jeff Kauffman with Vertical Research Partners. Please proceed.
Jeff Kauffman, Analyst
Thank you very much. And thank you for squeezing me in. Congratulations to everybody. This is a terrific quarter, just all around, not just LTL. So, it's great to see.
Judy McReynolds, Chairman, President and CEO
Thank you.
Jeff Kauffman, Analyst
Thank you. Looking at the bigger picture, every recession feels a bit like a hurricane; we adapt during the turmoil, and once it's over, the landscape looks different. You seem to be indicating this with the terminal capacity upgrade and other developments. We've heard from UPS about a shift back to more in-store shopping rather than online. Amazon has also suggested this trend. As the situation stabilizes and we start to see a more normal business environment, what major changes are you noticing? Is it still too early to determine whether some sectors are returning to previous models or entirely altering their distribution strategies and seeking your support in new ways? I'm curious about the differences you're observing as we move into a clearer post-COVID scenario.
Judy McReynolds, Chairman, President and CEO
Yes, that's a great question, and it's something we think about frequently as we engage in conversations that provide us with insights. Our business is connected to the industrial economy and retail, with a diverse mix of large, medium, and small companies as our clients. In the second quarter, we observed strength across all sectors, including manufacturing, wholesale, retail, and even construction. This serves as a positive backdrop. What's particularly different for us is the numerous discussions we're having with customers regarding their supply chain management. They are eager to reassess their situations, and it benefits them that we offer multiple solutions. This has allowed us to engage in meaningful conversations. Additionally, advancements in visibility have enhanced our understanding of our Asset-Based network and carrier partners, enabling us to identify what works best for them. They inform us about the types of freight and lanes they prefer. The more we can engage in high-level discussions and grasp the challenges within the supply chain, the better we can provide valuable solutions and options for our customers. In the past, customers often sought just one mode and typically limited their interactions to a single request for proposals or bids. The current changing environment is significant, as it reflects a transformation in how customers are approaching their supply chains and their willingness to invest in more comprehensive conversations.
David Humphrey, Vice President of Investor Relations
Yes, thank you very much. All right. Thanks a lot, Jeff. Listen, we thank everybody for joining us this morning. We appreciate your interest in ArcBest. And this concludes our conference call. Thanks a lot.
Operator, Operator
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.