Earnings Call Transcript
ARCBEST CORP /DE/ (ARCB)
Earnings Call Transcript - ARCB Q4 2021
Operator, Operator
Greetings, and welcome to the ArcBest Fourth Quarter 2021 Earnings Conference Call. At the start of the presentation, all lines will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, today’s call is being recorded, Tuesday, February 1, 2022. 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
Thank you for joining us. On today's call, we will walk you through the details of our recent fourth quarter and full year 2021 results. Our presentation will be done by Judy McReynolds, Chairman, President and CEO of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. Also joining us for the question-and-answer period will be Daniel Loe, ArcBest President of Asset-Light Logistics and Chief Yield Officer; Dennis Anderson, ArcBest Chief Customer Officer; and Michael Newcity, ArcBest Chief Innovation Officer and President of ArcBest Technologies. To help you better understand ArcBest and its results, some forward-looking statements could be made during this call. Forward-looking statements, by their very nature, are subject to uncertainties and risks. For a more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section of the company's press release and the company's most recent SEC public filings. To provide meaningful comparisons, certain information discussed in this call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. Reconciliations of the GAAP financial measures to the related non-GAAP measures discussed in this call are also provided in the additional information section of the presentation slides. As a reminder, the slides that Judy and David will be reviewing here can be found on the ArcBest website, arcb.com and Exhibit 99.3 of the 8-K that was filed earlier this morning or you can follow along with us on the webcast. We will now begin with Judy.
Judy McReynolds, Chairman, President and CEO
Thank you, David, and good morning, everyone. I want to start out today by recognizing our excellent employees and our amazing leadership team for their contributions to our success and their hard work that enabled us to deliver outstanding, record-breaking fourth quarter and full year results. In 2021, challenges across the world contributed to demand for our services reaching all-time highs. While this certainly was a factor in our success over the past year, I credit the exceptional nature of our achievements to the ArcBest team and their unwavering commitment to our strategic vision and years of hard work. This has set us up for success, even in the midst of a global pandemic. Before I take the time to look back at our quarter and year in more detail, I want to look forward. Our business stands apart because of several key differentiators. Our dedication to and focus on our customers. We are strategic advisors to our customers, building trust to ensure we're a reliable partner. This partnership is what drives our long-term growth. Our employees are adaptable and dedicated to our business. Throughout the pandemic and this past year, our team has successfully navigated ongoing change and pressures in the market to deliver for our customers. Our smart strategic investments, especially in technology, we have a rich history of delivering innovations and leading-edge solutions that make it easier for our customers, employees and carriers to do business. It is central to our ongoing strategy. We continuously analyze emerging technologies and collaborate with partners to ensure we can continue supporting our customers' success in the future. And we have alignment across the organization on our growth strategy. Our mission and our strategy are clear and are communicated regularly across the entire organization. When we're aligned and working toward the same goals, success follows. As a team and an organization, we've made great progress and we have no intentions of slowing down as we continue to capitalize on the significant opportunities ahead. I'll highlight some key achievements from our fourth quarter and full year and discuss our prospects for continued business success in 2022 and beyond. And then, David Cobb will take you through the specifics of the quarterly and annual financials. Slide 4 shows several milestones we reached in 2021. I am so pleased to be able to share with you our best fourth quarter and full year 2021 financial results. In the fourth quarter, we delivered the highest quarterly revenue and net income in our company's nearly 100-year history. For the full year of 2021, our revenue was $4 billion and our non-GAAP operating income increased 149%. 2021 was a big year for ArcBest infrastructure growth due to the addition of MoLo Solutions in November, which further deepened our customer relationships. Through this acquisition, we became a top 15 U.S. truckload broker, strengthening our position in the $91 billion domestic transportation management market. It also more than doubled our number of carrier partners providing more resources for serving our customers. We move closer to our strategic long-term goal of mirroring our customers' transportation spend as reflected in our revenue mix between asset-based and asset-light segments. A decade ago, the asset-light segment represented less than 10% of ArcBest revenue. This grew to 44% by the end of 2021. During the recent year, we also made significant progress on our corporate ESG and DEI initiatives. I'll share more details on these efforts later in the call. Importantly, we were also able to continue our track record of balanced capital allocation. Since the beginning of 2021, we have returned $116 million of capital to shareholders through share repurchases and dividends. This was meaningfully increased by the $100 million accelerated share repurchase agreement we entered into in the fourth quarter and completed last month. In line with our balanced capital allocation strategy and in light of ArcBest continued strong free cash flow generation, shareholder returns are a priority and that will continue in 2022. And finally, we announced a $25 million investment in Phantom Auto, the leading provider of human-centered remote operation software. This investment aligns with our long-term goals, complementing our existing innovation pipeline, technology roadmap and partnerships, and building on the important work already underway to support our customer success, and in return strengthen our business for the benefit of all stakeholders. Slide 5 outlines our three-point strategy to grow revenue and improve margins, which we've discussed in prior quarters. Our recent financial results and some of the key highlights that I just mentioned, including our revenue growth and more balanced revenue mix, illustrates the success we are already seeing as we execute on each tenant of this strategy. As a company, we are always looking at strategic investments across our business to enhance shareholder value and efficiently serve customers. Two key elements involved with that are investing in technology and investing in our people. Through technology investment, using new and innovative solutions, we're able to improve efficiencies, lower costs and overcome operational disruptions. We also invest in our people who are key to our success. We want to ensure that they have the tools, resources and means to do their jobs every day. These investments enable us to expand our revenue opportunities by serving our customers efficiently. As demonstrated on Slide 6, our growth strategy is grounded in the deep relationships we develop with our customers. We are constantly working to more effectively partner with them by expanding our offering of integrated logistic services. We continue to build our suite of solutions to serve our customers in multiple ways. When customers buy multiple solutions from us, we benefit from higher account revenues, improved profitability and better retention. More than 6 out of every 10 ArcBest customers utilizing our asset-light services are also using ABF Freight for LTL services. Our strategy of offering a comprehensive set of logistic solutions positions ArcBest for sustainable, long-term growth and value creation. ArcBest has a rich history of innovation and our technology advancements help us better serve our customers, our employees and our carrier partners. As a result, more than three-fourths of our revenue comes from digitally connected customers who do business with us through channels like arcb.com, APIs or other digital connections. Having these digital connections established enables us to more efficiently scale as we further grow the business. Technology is an important element to ensure that our services are provided in the most efficient manner and are serving customers in the places they want to do business. And now, I'll turn it over to David Cobb for more details on our fourth quarter and full year results.
David Cobb, Chief Financial Officer
Thank you, Judy, and good morning, everyone. On Slide 7, I'll begin with some financial highlights. We ended the year with unrestricted cash and short-term investments of $125 million. Our $226 million of debt at the end of 2021 included $50 million borrowed on our credit revolver and $176 million of notes payable, primarily on our equipment for our asset-based operation. The composite fixed interest rate on all of our debt was 2.6%. At the close of 2021, total liquidity was $365 million, including available resources under our credit revolver, in our receivables, securitization agreement. As many other companies have experienced due to manufacturing delays and part shortages, we did not receive all of the equipment we had planned for in 2021. In 2021, the net capital expenditures, including equipment finance, totaled $104 million. 2021 expenditures for revenue equipment totaled $79 million, the majority of which was for ArcBest asset-based operation. Depreciation and amortization costs on property, plant and equipment totaled $119 million. In addition, amortization of intangible assets was $5 million in 2021. For 2022, total net capital expenditures are estimated to range from $270 million to $290 million, including equipment purchases of approximately $160 million. Our 2022 investment plans reflect catching up on 2021 tractors, as well as investments above normal annual levels in equipment, real estate and facility upgrades to support our growth plans. We also have plans to purchase a small number of Class 8 electric tractors that are expected to arrive in the second half of the year. 2022 depreciation and amortization costs are estimated to range from $125 million to $130 million. This does not include amortization of intangible assets, which is estimated to be around $30 million in 2022, primarily related to purchase accounting amortization associated with the MoLo acquisition. The momentum in our business and strong customer demand produced solid cash flow generation with our 2021 EBITDAR totaling $453 million. Our cash balance and total liquidity are also at solid levels. And as of the end of the year, we were in a comfortable net debt position. The operating cash flow combined with the strength of our balance sheet continues to offer opportunities to make investments in our business, evaluate external growth opportunities, continue our share repurchases and pay a dividend. With our anticipated cash flows this year, returning capital to shareholders through share repurchases and dividends remains a priority. Our strong balance sheet and free cash flow provide flexibility to increase returns for our shareholders. On Slide 8, I'll highlight our consolidated information. Fourth quarter 2021 consolidated revenues were $1.2 billion, a 45% increase over the prior year. On a non-GAAP basis, consolidated operating income increased 159% to $102 million. Our adjusted fourth quarter 2021 earnings per diluted share grew 171% to $2.79 per share. For all of 2021, our consolidated revenues were $4 billion, a 35% increase over 2020. Non-GAAP consolidated operating income was $318 million, a year-over-year increase of 149%. 2021 adjusted earnings were $8.52 per diluted share, an increase of 149% over 2020. The 2021 effective tax rate that was used to calculate the non-GAAP EPS was 26.7%. Under the current tax laws, we expect our full year 2022 non-GAAP tax rate to be in a range of 26% to 27%. This may be impacted by discrete items that could occur throughout the year. Slide 9 provides highlights of our key metrics in our asset-based business. Asset-based fourth quarter revenue was $684 million, an average daily increase of 23% compared to last year. The fourth quarter non-GAAP asset-based operating ratio of 86.9% is a year-over-year improvement of 680 basis points. Fourth quarter daily tonnage increased 5.1% and daily shipments increased 1.5%. Total fourth quarter billed revenue per hundredweight increased 17.3%, including fuel surcharges. We secured an average 10.2% increase on asset-based customer contract renewals and deferred pricing agreements negotiated during the quarter, which is the highest quarterly increase of any quarter in our history. On an annual basis in 2021, total asset-based revenue was $2.6 billion, a daily increase of 24% and the highest ever for ABF. The full year non-GAAP operating ratio was 88.8%, reflecting an improvement of 540 basis points year-over-year and 920 basis points over the past five years. Total tonnage and shipments grew 7.6% and 4.3%, respectively. Total revenue per hundredweight increased 14.7% with an average 7.8% increase on customer contract and deferred pricing agreements renewed during the year. As presented on Slide 10, our asset-based preliminary business trends for January reflect continued strong revenue and pricing increases and slightly higher total tonnage. The January 2022 asset-based tonnage and shipment trends have been impacted by fewer transactional shipments versus last year, which were intentionally moderated to serve the increasing demand from core customers. Our core or published LTL tonnage and shipments increased by a percentage in the high single digits in January 2022 over January 2021. The sequential changes in average daily tonnage and shipments with these core customers compared to December were some of the best over the last 10 years. Additional details on our January 2022 business trends can be found in the Form 8-K exhibit to the press release. ArcBest asset-light key metrics are presented on Slide 11. In total, the fourth quarter revenue in ArcBest asset-light businesses increased 80% versus fourth quarter 2020, reflecting strong demand in our ArcBest segment, the addition of MoLo and improved events in revenue per event in the FleetNet statement. For the months of November and December, MoLo added approximately $120 million to the revenue total of the ArcBest segment. For all of 2021, asset-light revenue per day increased 59% over 2020 to $1.6 billion. Fourth quarter asset-light non-GAAP operating income was up 156% over last year and totaled $49 million for the full year of 2021, an increase of 193% over 2020. During the recent quarter, demand for expedite in international solutions drove significant growth in operating income as favorable market conditions and increased project work combined with cost control created strong margin leverage. Fourth quarter asset-light EBITDA was $18.6 million, more than double the same period of 2020 and totaled $64 million for the full year 2021, a 163% increase year-over-year. Preliminary asset-light business trends for January 2022 have been provided in the Form 8-K exhibit to the press release, which was filed this morning. Solid customer demand drove revenue growth in expedite, managed solutions and truckload brokerage. In addition, the positive influence of MoLo truckload brokerage revenue on year-over-year comparisons is reflected in the preliminary January daily revenue increase of 135%. As we have previously stated, at the time of the MoLo purchase, this business was operating at a breakeven level. We expect that the MoLo business will continue to be breakeven for most of this year, which will have an impact on total asset-light margins during that period. Earnings accretion on the MoLo business before purchase accounting amortization is expected to begin in the fourth quarter.
Judy McReynolds, Chairman, President and CEO
Thanks, David. On Slide 12, we've highlighted some of the environmental, social and corporate governance initiatives we've been working on. As shown here, we continue to make progress on our ESG journey. We recently joined the FreightWaves Carbon Emissions cohort. We've also committed resources in adding both an ESG Program Manager and a Corporate Social Responsibility Program Manager who will direct our diversity, equity and inclusion initiatives. These roles will be critical to helping us advance our ESG strategy even further in the years ahead. Our team also continued to focus our efforts on our DEI strategy throughout 2021. Since October of 2020, we've been working with the Kaleidoscope Group to help us assess the current state of DEI within ArcBest to help us align our DEI vision and gather employee feedback. Toward the end of last year, we introduced our DEI strategy roadmap which centers around four key areas; workforce, workplace, community and marketplace. This roadmap will guide our work in raising awareness of DEI issues and achieving our goals in this important area as we move forward. While we have more work to do at ArcBest, we believe that we are truly at our best when we are listening to our people and we know varied perspectives make our company stronger as we serve our customers and communities with excellence. Our strategy, as shown on Slide 13, positions us well for revenue growth and improved profitability. As an integrated logistics company with our own assets, we provide customers the best of both worlds. It's the combination of our solutions and the ability to serve customers across modes without switching service providers that sets us apart. We have built technology-enabled solutions and products such as the ability to digitally match, negotiate, and award truckload freight and dynamic LTL pricing to name a few. With these tools, we can adjust our business mix to optimize and maximize revenue by utilizing our resources effectively. As a company, we have a rich history of using innovative technology that makes it easier for customers to do business. This is central to our ongoing strategy. At ArcBest, we work to see our business through the lens of our customers, effectively meeting their needs and using technology to drive efficiencies enables us to deliver profitable growth. As we approach our 100-year anniversary and look forward to the next 100 years, we know we must be agile, staying open to new ideas and innovation that will continue to ensure we deliver for our customers every time. Before opening it up for Q&A, I want to introduce our updated long-term financial targets. As you can see on Slide 14, we aim to grow revenue to between $7 billion to $8 billion over the next four years. Based on our current $4 billion revenue level and the key revenue drivers I outlined earlier, we are confident that we can double this figure by 2025. Our previous goal was to achieve high single digit asset-based operating margins. With our steady progress and future plans, our new goal is to consistently generate asset-based operating margins between 10% and 15%. Likewise, in our asset-light business as we fully integrate MoLo and benefit from combining our asset-light and asset-based services into comprehensive customer solutions, we will focus on achieving asset-light operating margins, excluding FleetNet, from 4% to 6%. And finally, for many years, we focused our business on maximizing our return on capital employed. We train our team on the elements of ROCE and what actions they can take toward increasing that financial metric. Our employee incentive plans are in part based on our ROCE performance. As we move forward in the next few years, we will strive to produce returns in our business that exceeds the average ROCE of S&P 500 companies. We firmly believe that we are in a perfect position to achieve our financial goals. Our strategy is guided by what our customers tell us they need to make their businesses perform better and more efficiently. And we've transformed our company to allow us to effectively respond to those needs. We are confident that continued profitable growth, further enhanced operational efficiency and superior returns on our capital employed will drive strong value creation and multiple expansion for the benefit of ArcBest shareholders. Our record-setting performance in 2021 will act as a springboard for a growing and profitable future at ArcBest for many years to come. That concludes our prepared remarks. David Humphrey, we can now open the call up for questions.
David Humphrey, Vice President of Investor Relations
Okay. I think we're ready for some questions.
Operator, Operator
Thank you, sir. The first question comes from Jason Seidl with Cowen. Please go ahead.
Jason Seidl, Analyst
Thank you, operator. Judy and team, good morning. Congratulations on a good quarter here. Wanted to dive in a little bit on the pricing side, the strongest quarterly contract renewals that you guys have seen. What's driving that market as it continues to get better? And are you seeing that same strength continue here early on in your 2022 renewals?
Danny Loe, President of Asset-Light Logistics and Chief Yield Officer
This is Dan. I want to highlight that we’re currently in a strong pricing environment. Several factors are contributing to this trend as we look ahead. David pointed out that we haven’t fully executed our 2021 CapEx purchases on the asset side, which is something we've been hearing from the entire marketplace. Additionally, we are engaging in discussions with our customers, ensuring that the freight we incorporate into our asset-based network aligns with our priorities. By having transparent conversations with customers regarding rising costs and the services we provide, I believe we are seeing positive outcomes in the current pricing environment.
Jason Seidl, Analyst
Did central have any impact in the quarter?
David Cobb, Chief Financial Officer
Central, very low impact as far as we've seen. I think the second part of your question you asked about January. And so we're seeing similar in January to what we saw in the fourth quarter as far as contract renewals.
Jason Seidl, Analyst
Perfect. That was my one. I appreciate the time as always.
Judy McReynolds, Chairman, President and CEO
Thank you, Jason.
David Cobb, Chief Financial Officer
Thanks, Jason.
Operator, Operator
Next question comes from the line of Chris Wetherbee with Citigroup. Please go ahead.
Chris Wetherbee, Analyst
Hi, thanks. Good morning, guys.
Judy McReynolds, Chairman, President and CEO
Good morning.
Chris Wetherbee, Analyst
Good morning. I wanted to discuss how you are handling the transactional business and how that might influence tonnage growth, particularly in the first half of 2022. Can you provide some insight into the difference between your current tonnage expectations, ranging from 2% to high single digits with your core customers? I'm trying to gain a clearer understanding of the current tonnage environment and how you are navigating it.
Dennis Anderson, Chief Customer Officer
Let me talk in general and David may follow up with some specific numbers if we need to follow up. But we see the transactional business' ability to fill a network where we have capacity available to us. And as David described, we're seeing this sequential change from fourth quarter to first quarter in January of the strongest we've seen in our core published customers. And so in those cases, that transactional need to fill some capacity for that network is not there. And so there's a combination of things that will reduce some of the shipments we're getting for transactional, but it also allows better price on that transactional business, because we're more selective about what we put in the network. And so for us, that's a daily, weekly, monthly review, and we really don't want to predict what it's going to do in the future. We use it as a mechanism to make sure our network is full or our network is balanced as we move forward.
Judy McReynolds, Chairman, President and CEO
Dennis, I'll just contribute that it’s hard to say what the tonnage growth could be or would be, but suffice it to say we have more opportunities than we say yes to because of wanting to serve our core customers, which I think is serving us well in terms of our, I think our yield results and our overall margin results and satisfying customers that are long-term customers for us.
Dennis Anderson, Chief Customer Officer
I think the other thing when we say transactional, we talk a lot about how it benefits the network. This is also a benefit to our customers. We're engaging our customers. That's how they were asking us to engage with them. They are making decisions on a shipment-by-shipment basis and how to route those shipments. And so we're just meeting them where they are. And some days we need the shipments to fill capacity and some days we don't and they understand that, and they're willing to work with us as we go forward.
Chris Wetherbee, Analyst
Okay. That's super helpful. And then just quickly on the first quarter sort of the cadence from 4Q to 1Q in the asset-based business, I think you generally talk about 250 basis point deterioration in the operating ratio. When you think about this year, what's going on in the pricing environment, what you're doing in terms of managing tonnage on the network, is that the right number to be thinking about or are there some puts and takes we should be considering?
David Cobb, Chief Financial Officer
Yes. Chris, this is David, and good morning. You're right. We mentioned the average increase has been approximately 250 basis points in recent history. And I think one thing that's kind of unusual to that comparison is the early GRI that probably ought to be considered that we took in November of 2021. When typically we take a GRI in the first quarter, that's probably one of the unusual things to consider. I guess the other thing is just we're starting in a fourth quarter that is the best OR that we've had for our fourth quarter. So it makes it a challenging comp. But all that's to say, I think you're pointing out that we have good momentum and opportunities ahead of us.
Chris Wetherbee, Analyst
Okay, that's helpful. Thanks for the time. I appreciate it.
Judy McReynolds, Chairman, President and CEO
Thank you.
Operator, Operator
Our next question comes from the line of Scott Group with Wolfe Research. Please go ahead.
Scott Group, Analyst
Hi. Thanks. Good morning. I wanted to ask a few things on the new long-term guidance. So double-digit revenue growth. I'm curious if you're assuming any acquisitions in that. And then with the 10% to 15% LTL margins, is the point there that you think even if we go into a freight downturn, you think the trough for LTL is now 10%? And then just last thing on the guidance, you obviously have a new Teamsters contract by 2025. Have you assumed anything meaningfully different in that new contract with this guidance?
David Cobb, Chief Financial Officer
Yes, I'll begin and then let others add as needed. When considering our long-term targets, it really starts with executing our existing strategy, which Judy mentioned in her slides. We aim to operate our business from the customers' perspective, as illustrated in another slide. This means our revenue growth should reflect our customers' needs. Regarding acquisition opportunities, we are open to them, but they are not included in these revenue targets. To provide additional context on the revenue target, if we include MoLo for an entire base year and assume a pro forma MoLo for 2021, then the compound annual growth rate is around 12% to 16%.
Judy McReynolds, Chairman, President and CEO
If there’s an assumption on the Teamsters contract.
David Cobb, Chief Financial Officer
I would just say we're continuing the cost inflation kind of what we're seeing now. So nothing unusual or different around that cost structure.
Scott Group, Analyst
Are you considering a potential freight downturn? The question is whether you can achieve a 10% LTL margin during a downturn, especially since historically it has been lower. That would be significant. So, are you thinking about that, or is it simply the case that if the freight environment stays strong like it currently is, you anticipate a range of 10 to 15? I'm trying to clarify that.
David Cobb, Chief Financial Officer
Yes. Looking back at our history, especially over the past five years, we've experienced various conditions, such as a strong trade environment in 2018, a freight recession in 2019, and the pandemic in 2020. These fluctuations show that we can't predict when a freight downturn or market weakness will happen, as that isn't part of our planning. Our targets are long-term, based on the assumption of a generally positive economic environment, averaging around 2% to 3% growth from a GDP perspective.
Scott Group, Analyst
Okay. And if I could just ask a last one, so more near term as I think about '22, right. Full year margins and LTL are typically better than fourth quarter margin. So do you think that we should see some improvement in '22 from that 86.9 in the fourth quarter?
Judy McReynolds, Chairman, President and CEO
Well, Scott, we're not going to predict what 2022 margins are going to be, but we have a lot of great momentum that you see in the fourth quarter. And then as we're starting 2022, there's a number of things from a macro standpoint I think working in our favor. And I think it is interesting to note, you brought up the Teamster contract that we have, it's an overall 2% increase on a large portion of our costs in the asset-based business that will be there for the full year of 2022. And we have a robust yield environment. So that's helpful to us when we think about that. Plus, again, we've got some investments that David outlined in the real estate side of things and equipment that lend themselves to grow in that business. And Danny is sitting here across the table from me. One of the things that he always says is we do the best when we can grow and also have a good backdrop for yield. And we've got great relationships with customers. They're seeing a lot of value in what we're doing. And I think the overall strategy that we have as a company really lends itself to helping customers in both the channels that they want and in the modes that they want, which is very helpful to retention. All that is a good backdrop.
Scott Group, Analyst
Thank you very much for the time. I appreciate it.
Judy McReynolds, Chairman, President and CEO
Thank you.
Operator, Operator
Our next question comes from the line of Jack Atkins with Stephens Inc. Please go ahead.
Jack Atkins, Analyst
Yes, great. Good morning. Thanks for taking my questions.
Judy McReynolds, Chairman, President and CEO
Good morning, Jack.
Jack Atkins, Analyst
I guess maybe just going back to the long-term guidance for a moment, one of the questions I've been getting a good bit this morning from investors, it's just been around trying to break out that $7 billion to $8 billion, maybe if you can provide some brackets around how we should be thinking and how that breaks down between the asset-based business and the non-asset-based business? David, is there anything you can maybe help us with there?
David Cobb, Chief Financial Officer
Well, like I just said, the mix there will be a reflection of our customers' needs. We're an integrated logistics company. And as they need our services, we're positioned well with the trends that we're seeing in logistics, we can go into those. But all that is to say is that our services are in high demand. And so we'd rather give this as a top-level perspective on the revenue targets.
Judy McReynolds, Chairman, President and CEO
And David, that's the way that we manage the business.
David Cobb, Chief Financial Officer
Exactly.
Jack Atkins, Analyst
Okay, understood. Then I guess maybe for my second question, David, can you talk about the CapEx investments specifically related to real estate and investments in the network? What is the expectation for door count growth in 2022, if you could provide that, that would be helpful? And do any of these supply chain challenges maybe push out that network expansion beyond what you were expecting maybe three to six months ago?
David Cobb, Chief Financial Officer
Yes. I think it's similar to what we discussed last quarter. However, as you mentioned, the supply chain limitations are affecting our facility operations. In 2022, we expect our real estate purchases to be between $45 million and $55 million, which is consistent with what we've indicated before. Our expansion plans for facilities may involve leasing, as we lease some of our locations while owning others. We're aiming for shipment growth by the end of 2022 in the mid-single-digit percentage range, and we are still focused on achieving this by the end of the year.
Judy McReynolds, Chairman, President and CEO
Yes. And I'll contribute one other thing. I think we've been pretty realistic, don't you David, about the real estate that we can get done in 2022. We'd like to do more. And we have plans to do more as we go through that period of the upcoming years beyond 2022. But I think we've been pretty realistic about it. Although we always know that we spend a little bit less than what we have in our plans.
David Cobb, Chief Financial Officer
Yes, that's right. That's a good point.
Jack Atkins, Analyst
Okay, that's helpful. Thanks so much for the time.
David Cobb, Chief Financial Officer
Thanks, Jack.
Operator, Operator
Our next question comes from the line of Bruce Chan with Stifel. Please go ahead.
Matt Milask, Analyst
Hi. Good morning. This is Matt on for Bruce. Thanks for taking the questions.
Judy McReynolds, Chairman, President and CEO
Good morning, Matt.
Matt Milask, Analyst
Good morning. Just wanted to talk a bit about Phantom Auto and maybe specifically, what drew you to them versus others? Maybe what benchmark or return criteria you're using to evaluate the investment? And is this a one-off or should we expect more deals of this kind going forward? Thanks a lot?
Judy McReynolds, Chairman, President and CEO
Well, I'll start and then we have Michael Newcity on that I'll let him contribute here in just a minute. We have been a company that through the years, our innovative thinking has entered into what we do to try to operationally improve our own business, but also just supply chain spending in general. And Phantom Auto, the investment there is in that vein. And we have a tech R&D team that reports to Michael that has always been good at identifying opportunities that we have to optimize costs or improve the way we approach these challenges. And they typically have a good set of partners. And we've been partnered with Phantom for many years, I guess, maybe back, Michael, in February of 2020. And Michael, I'll let you comment about that. Go ahead.
Michael Newcity, Chief Innovation Officer
Yes. Okay. While I'm not going to share anything on return expectations, I think of course we expect something significant there. I'd say what's compelling for us is that when we look at customers managing their supply chains, I think that the shipping component is just one element of the overall operations and getting something from point A to point B. There are numerous operations before a shipment is picked up after it's delivered, private fleet operations with their own cross stack operations, there's internal work and low consolidation, deconsolidation, edge operations within a warehouse and managing staging inventories and building loads. And so we see an opportunity here with Phantom to really bring insights and technology to our customer operations in managing freight before shipment is picked up before it's delivered. So we feel a larger market with our customers in that regard and helping them solve their problems and provide supply chain solutions. So it's a really exciting technology for us, especially given the fact that we see the opportunity with our existing customers.
Matt Milask, Analyst
Thanks.
David Cobb, Chief Financial Officer
Thanks, Matt.
Judy McReynolds, Chairman, President and CEO
Thank you.
Operator, Operator
Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Kristine Liwag, Analyst
Hi. This is Kristine Liwag on for Ravi Shanker. How are you guys? Thanks for taking the questions.
Judy McReynolds, Chairman, President and CEO
Good morning, Kristine.
Kristine Liwag, Analyst
Good morning. Maybe if I can circle back to the long-term targets around operating margins, and maybe I can ask the question a slightly different way. But this year has obviously been very good for margin improvement prior to the initiative. I know you guys have discussed in the past about the impact. So maybe you can just talk a little bit about productivity initiatives that you have now, kind of what's been most impactful? Do you still feel that there's runway there or is that kind of what pulls us to that 15% over time, or how should we think about that?
Judy McReynolds, Chairman, President and CEO
I believe it's important to note that we have been focused on enhancing both our growth prospects and margins for some time, even before the pandemic. I recall that in 2017, we started implementing an improved market strategy along with the introduction of the CMC, which aided our pricing decisions by requiring customers to provide more information. Over the years, we have invested in technology, our solutions, and our team, positioning us well for growth and margin expansion moving forward. When I reflect on our progress, I consider it beyond just the pandemic period. Dennis Anderson is also here to discuss the opportunities we have with our customers and how our conversations contribute to improving margins.
Dennis Anderson, Chief Customer Officer
Absolutely. Thanks, Judy, and good morning, Kristine. When we think about, as Judy said, over the last few years, just resetting the conversation with our customers and being able to deliver for them in not just an LTL mode, but really any mode, that's been a big win from a strategic standpoint but it's also been a big win for our customers. And especially, as you mentioned, as we've gone through the pandemic period, with their supply chains disrupted, they're really valuing reliable capacity. And we see that just even in how they think about managing their supply chain, managing their inventory, and maybe even some reset in long-term thinking of how that comes together; and so looking for more reliability, shifting modes more frequently, and combining modes or finding new ways to build flexibility in their supply chains. So we really feel great about our breadth of integrated solutions and the mode neutrality that are a differentiator and really enable us to focus on helping our customers solve their challenges, building their trust, and really creating that value that they're willing to pay for. And so from a price perspective, we feel good about where that is and where that's headed. But then also, our ability to partner with them really in any environment has greatly grown. And as Judy referenced in the top of the call, just using this as a springboard for future growth is really what we're focused on.
Kristine Liwag, Analyst
Got it. Really helpful color. Maybe if I can squeeze in another. I think if I heard correctly, you guys are planning to take several electric vehicles in the back half of this year. Maybe you could just sort of quickly comment on the plan for those? And then as you look out over the next couple of years, if and how you plan to kind of scale up any sort of electric operations?
Judy McReynolds, Chairman, President and CEO
Yes. We're committed to innovative thinking and transformative solutions and approaches as we talked about, and we are investing certainly time and exploration on the practical utilization of electric vehicles in our asset-based network. We recently did a four-week test of battery electric yard tractor in our Kansas City service center. And we've also partnered with multiple companies to investigate the deployment of electric vehicles for our city pickup and delivery and warehouse handling units. And our CapEx plans do include the purchase of some Class 8 electric tractors that are expected to arrive in the second half of this year. So we're excited to get going on some testing there and see what that means to us and learning its impact.
Kristine Liwag, Analyst
Awesome. I really appreciate the time. Thanks for the color.
David Cobb, Chief Financial Officer
Thank you.
Judy McReynolds, Chairman, President and CEO
Thank you.
Operator, Operator
Next question is from the line of Ken Hoexter with BofA. Please go ahead.
Ken Hoexter, Analyst
Hi, great. Good morning and nice strong results.
Judy McReynolds, Chairman, President and CEO
Good morning, Ken.
Ken Hoexter, Analyst
Judy, can you just maybe, I know you've had a lot of questions on the margins and your long-term outlook, but just on the asset-based side, is it fair to think about 100 basis per year as a target? Is there anything, just given the strength of the pricing that we should still see maybe more of a step function, given the environment we're in now? Maybe you can kind of just give your thoughts on that or for Dave? And then are there any constraints given the union percentage payouts, it seems like you're at the max now. Maybe what are your thoughts in there for that long-term target doesn't stay at that same level? Thanks.
Judy McReynolds, Chairman, President and CEO
Yes, we are excited to implement the union incentive. I believe there will be enthusiasm among our workforce regarding this decision. While the future remains uncertain, this initiative has been beneficial for both employees and shareholders. We have been systematically working through various technology enhancements and operational improvements, utilizing a solid project management process that enables us to capitalize on software advancements and AI innovations. However, we have numerous important projects to tackle, and my main challenge lies in prioritizing which ones to address first. There is potential for further progress, though I cannot predict if it will happen in a linear manner. We are highly focused on optimizing costs while also aiming for value creation in our work. Our collaborations with managed customers provide valuable insights into their capacity choices and options, greatly aiding our decision-making. In conclusion, we recognize that there is room for growth, and we are eager to achieve our targets for 2025.
Ken Hoexter, Analyst
Great. Following up on David, could you discuss the pace of tonnage throughout the quarter? I'm particularly interested in how Omicron affected us and the recovery at the end, as well as your outlook for January. Also, do you have any updates regarding the buyback? Thank you.
David Cobb, Chief Financial Officer
Yes. Just in terms of the buyback, we have $42 million available under our share authorization and we intend to utilize that, so looking forward to that. As we said, we completed the ASR in early January. In terms of the business trends, I mentioned that we continue to see just solid growth from our core customers or what we call published LTL pricing customers. And that continued into January. So it's just a matter of serving those customers, as we talked about. I don't know if there's anything else that we need to add to that.
Judy McReynolds, Chairman, President and CEO
The 8-K has all the monthly detail.
David Cobb, Chief Financial Officer
That's right. I think the comp was a little more challenging in October as well, which is part of what that was about.
Ken Hoexter, Analyst
Yes, thanks, Dave. I was curious about the impact of Omicron that you're discussing. I know about the monthly figures, but I want to understand your outlook for January regarding any potential deceleration.
Judy McReynolds, Chairman, President and CEO
We have experienced an impact from that situation. There was a surge in our cases, but fortunately, that trend is starting to reverse. However, it did affect several of our employees who were sick, which posed its own set of challenges. We believe we have reached the peak and are now on the decline. I spoke with Seth Runser, the ABF President, yesterday, and he was optimistic about the return of employees to work. Nonetheless, this has been a challenge, and it also affects shippers, which in turn impacts our productivity as we engage with them.
Ken Hoexter, Analyst
Thanks for the time.
David Cobb, Chief Financial Officer
Thank you.
Operator, Operator
Next question comes from the line of Todd Fowler with KeyBanc Capital Markets. Please go ahead.
Todd Fowler, Analyst
Hi, great. Thanks and good morning. I apologize if I missed this, but David or Judy, can you talk about the required capital to get to the 2025 revenue targets? I don't know if you could share either CapEx as a percent of revenue or just kind of a thought on kind of what the CapEx level needs to be over the next couple of years. And then as a follow up to that, it feels like at the levels that you're targeting in '25, you'd be generating quite a bit of free cash. And so maybe a little follow up to the last question, but how do you view capital deployment over the next couple of years as you move towards these targets? Thanks.
David Cobb, Chief Financial Officer
I will begin by discussing the elevated capital expenditures for 2022 compared to our historical trends. This increase is partially due to fulfilling orders from 2021. We have expressed our commitment to investing in the business to support our growth plans. Therefore, I anticipate our capital expenditures will be around $250 million beyond 2022. While I don't have specific yearly details to share right now, it's important to relate these CapEx levels to our expected revenue, which should remain reasonable. We will also balance this with our return on capital employed targets, focusing on generating good returns on our investments. Your observation about generating positive cash flow aligns with our goals, and I foresee returning capital to shareholders as a result. We’re committed to ongoing investments in the business, as Judy mentioned regarding the advancements in technology we've invested in. These initiatives will continue to yield benefits as they mature. Our strategy involves a balanced capital allocation that includes investing for strong returns, being opportunistic in M&A and technology investments like Phantom, and returning cash to shareholders. This outlines our overall approach.
Todd Fowler, Analyst
David, that's useful information. It's reassuring to know that there isn't a significant increase expected. The $250 million serves as a reasonable benchmark, but there's no major rise anticipated in capital expenditures to reach those figures. For my follow-up, do you have any insights on the growth rate for MoLo? I understand there will be some correlation with spot pricing and transaction rates in the truckload sector. However, should we expect that growth rate to possibly slow down as you move towards profitability, or could it actually accelerate under your platform due to additional opportunities for cross-selling? I'm interested in your perspective on MoLo's growth rate moving forward. Thank you.
David Cobb, Chief Financial Officer
I would say that in the first phase we will discuss our integration, but when considering the purpose of the MoLo acquisition, it had two main objectives. One was to enhance our ability to source capacity for our customers. When you're effectively sourcing capacity for your customers, it indicates growth. While I cannot provide a specific number, we are enthusiastic about the potential ahead, and nothing we have encountered so far has diminished the excitement we felt at the time of the acquisition.
Todd Fowler, Analyst
Got it. Thanks for the time this morning.
Judy McReynolds, Chairman, President and CEO
Thank you.
David Cobb, Chief Financial Officer
Thanks, Todd. I think we've got a couple more here that we're going to try to get in.
Operator, Operator
Next question is from the line of Stephanie Moore with Truist. Please go ahead.
Stephanie Moore, Analyst
Hi. Good morning, everybody.
Judy McReynolds, Chairman, President and CEO
Good morning, Stephanie.
Stephanie Moore, Analyst
I wanted to touch on the long-term margin target, again, on the asset-based side and just make sure that I'm thinking about it correctly. If you go back over the last five years, I think you have a trough asset-based OR kind of near that 3%. But I think you've also called out over the last year or so about 600 basis points of permanent or structural margin improvement from a lot of the investments you've called out on this call already and the pricing and the tax. So I guess a two-part question here. So first, if you take kind of the lowest margin and then you account for these 600 plus of improvement, you get pretty close to the low end here of this 2025 target range. So is that kind of the right way to think about the puts and takes into this new range? And then the second point, kind of along the same line, the range also calls for an improvement here on the high end too. So maybe if you could just outline as we look forward, what are the main buckets driving these incremental gains kind of at the high end of this range? Thanks.
David Cobb, Chief Financial Officer
I'll start, and others can contribute. Consider the operating leverage we’ll gain as revenue increases. Dennis and Judy have discussed how we connect with customers, including through digital channels. This creates two advantages: one for growth and one for efficiency, as many customers prefer this method of doing business with us. It's essential for us to provide an efficient experience tailored to how customers want to engage, including our carriers. We have implemented technology that supports both our carriers and customer base, which will optimize our operating ratio and enhance revenue leverage. Additionally, we are optimizing other areas, increasing visibility of shipments, which allows us to reduce time and effort in back office operations. These are key factors to consider, including improving our understanding of costs as we utilize these technologies. We can enhance our route efficiency for both long-distance and local pickups and deliveries in our asset-based operations, contributing to our margins.
Judy McReynolds, Chairman, President and CEO
And I thought the way that you were thinking about it, Stephanie, made sense. It does.
Operator, Operator
Our next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please go ahead.
Jeffrey Kauffman, Analyst
Thank you very much. Thank you for squeezing me in and congratulations. These results are just amazing.
Judy McReynolds, Chairman, President and CEO
Thanks, Jeff.
Jeffrey Kauffman, Analyst
Thank you. I'd like to follow up on Todd Fowler's question and Scott Group's question a little bit. If I just do some basic algebra on the long-term guide, and I know that's kind of a pin on the wall as there’s a lot of uncertainty, it's implying earnings in the $15 to $16 range. If I kind of take what David was saying in terms of CapEx guidance and things like that, it's implying even after CapEx, if you can achieve those goals, you're looking at $10 to $11 a share in free cash. And I know we can't take that as given. But you mentioned, we'll increase dividend, increase share buyback, but you're still a couple hundred million in extra cash. Is the feeling that to achieve the growth as Scott Group was implying, we need to accelerate acquisitions a little bit on the logistic side to get to those levels? Is the implication that the balance sheet's in pretty healthy range, once you get past the union negotiation, figure out what to do with the cash, we would see substantially larger returns to the shareholder in terms of dividend, treasury stock? Moving past the CapEx side of the capital allocation, if we think about the utilization of free cash, if you're able to achieve your goals, what are the priorities? And how should we think about that as we think about a 2025 earnings target and then carrying it down to the cash flow statement?
Judy McReynolds, Chairman, President and CEO
Yes, Jeff, as I think about that, my first thought honestly is that we have to be prepared to invest as we see the future unfold for managing supply chains. That's what you've seen us do with MoLo as well as the investment with Phantom Auto. And the partnership we have with Phantom Auto will hopefully ultimately go to market with our customers. And we really are at a very early stage of that. So that's an opportunity as well. But we can't see exactly what it means in terms of M&A. But we know that with the disciplined approach that we use that we're not going to put that resource to use in an inefficient manner. And that's I think the message with RFP targets that's out there as well. So I think what we know to be the case is that we need to deploy the balance sheet as we're going through that period. And the priorities have tended to be in the organic sense to make sure that we're gaining the performance from our existing deployed resources, and then also to be open to M&A and be able to act quickly whenever we see an opportunity there that really advances our platform. And when we look at a balance that is beyond that, we will be in a position to return that capital to shareholders. So I think it's just restating what David had said earlier, but that's really the way that we think about it. And honestly, we can't tell you exactly what trigger is going to be pulled between that M&A and the capital return, because we're going to be open to what that needs to be to advance our strategy and our platform and our customer service.
Jeffrey Kauffman, Analyst
Just one quick follow up if I can, and thank you for that answer. ESG just becoming a hotter and hotter topic and people are talking about moving from Scope 1, Scope 2 ESG to Scope 3, which really kind of looks at the supply chain emissions and what have you. As you look at what's coming down the pipe and kind of where you want to position the company, we've got electric vehicles, we got fuel cell vehicles, we got self-driving vehicles, all kinds of things we can do. In your evaluation, where do you think you need to push capital investment a little harder? And can you give us an idea of kind of how you think the pace of adoption needs to be over the next couple of years?
Judy McReynolds, Chairman, President and CEO
Well, I think that it will be an instructive year as we're doing some test work on those electric vehicles this year that we're going to have some visibility. And interestingly with FleetNet, we get some early visibility of the utilization of electric vehicles by others that they do business with, which is I think helpful to just our overall understanding of the performance there. And we have a group, as I mentioned earlier, that's looking at those advanced technologies and how they could integrate into, for instance, the asset-based network. And so we I think have the right resource on it. I do think it's going to be slowly through the period up to 2025 in terms of its impact, just because you have to do this testing and absorption and understanding, and then making these bigger decisions. But we're very open and advancing our thinking. On the ESG front, I'll just mention real quickly, the real estate work that we're doing is really going to help us there. We've got that on our minds as a benefit to gain. The other thing I'd say is this year is a data gathering year for us. And including the carbon emissions, we're getting into a position where we can see things better, so then we can make some better decisions. But we've visited with a number of experts in this field, and especially on the social side, we're doing very well in terms of how we compare, and we love that because that's the company that we are.
Dennis Anderson, Chief Customer Officer
Jeff, this is Dennis. I would add too from a customer perspective. One of the benefits of our strategy is being able to optimize supply chains. And we were in a customer conversation yesterday with a very large recognizable brand that said one of their top priorities this year is sustainability. They've set out some carbon emissions targets. We're actually helping them through that in thinking about how can we optimize supply chain? So just by the very nature of having that kind of an approach, we're plugging into customers' supply chains to help them from a sustainability standpoint. So investing in our strategy is an investment in sustainability as well.
Jeffrey Kauffman, Analyst
Thank you very much.
David Cobb, Chief Financial Officer
Thanks, Jeff.
David Humphrey, Vice President of Investor Relations
Thanks a lot, Jeff. Well, listen we thank you for joining us this morning. We appreciate your interest in ArcBest. And this concludes our call. Thank you very much.
Operator, Operator
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.