ArcBest Corporation (ARCB) Q4 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2018 Earnings Call brought to you by ArcBest. During the presentation, all participants will be in the listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded Thursday, January 31, 2019. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead, sir.

Welcome to the ArcBest fourth quarter 2018 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. Today, following Judy and David's opening comments about the fourth quarter results, I will conduct a question-and-answer period with them by reading submitted questions that we received last night following our earnings release. We appreciate the questions that we received and we will try to answer as many as we can during the remaining time of the call. We thank you for joining us today. 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 risk. 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 in 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.

Thank you, David, and good morning, everyone. 2018 was a year of considerable achievements at ArcBest. We accomplished many milestones throughout the year and each quarter saw strong year-over-year results, including the fourth quarter earnings that we reported yesterday afternoon. I am very proud of our team for producing this consistently strong performance and I look forward to discussing the highlights of the quarter and the year with you today. The economic environment was favorable and our customers certainly recognize the value we offer through our Asset-Based and Asset-Light logistics solutions. Our team's solid execution on behalf of customers led ArcBest to surpass $3 billion in total revenue last year and to report record non-GAAP earnings per share. We are also pleased that our stock hit an all-time high in September. ABF celebrated 95 years in business, a remarkable story of longevity, prosperity and innovation in an industry where many competitors have disappeared over the years. As you know, ABF Teamster employees ratified a five-year labor contract in July, allowing us to maintain low-cost inflation in a tight labor market, while providing some of the best wages and benefits in the industry. Returning ABF to historical margins has been a long stated goal, and we are pleased with our progress. Even while this process was underway, we continue to work on many different customer-facing initiatives across the organization. Another one of the great stories of the year was the improved profitability we achieved as a result of our space-based pricing initiatives in which minimum charges were established to ensure we are compensated for the value we provide. This effort propelled our Asset-Based business to surpass $2 billion in revenue for the first time ever and record an operating ratio in the low 90s as we close out the year. On the Asset-Light side, we saw a solid improvement in operating income as we continue to deepen customer and carrier relationships. In particular, managed transportation solutions continue to gain traction and acceptance. And now, I'll discuss some detail on the fourth quarter performance of our service offerings. In our Asset-Based business, we took advantage of a positive freight environment by growing our freight levels and improving profitability compared to the same period last year. For the first time this year, we experienced growth in both average daily shipments and tonnage. The increase in business levels positively impacted productivity and helped us in cost management. Combined with the continuing benefits of our yield management initiatives, we were able to generate Asset-Based revenue growth and a 280 basis point improvement in ABF Freight's fourth quarter operating ratio compared to the same period last year. The improved Asset-Based financial results we experienced in the quarter versus last year illustrates the continuing benefits of our efforts to improve pricing on many accounts. We are well pass the August 2017 implementation of our space-based pricing programs that the foundation that came from that initiative is driving the success we are seeing today. In addition to the positives associated with the effects of this initiative, we obtained good renewal rates on the deferred and contract pricing agreements negotiated during the fourth quarter. The pricing environment continues to be good and as a result, we will implement a 5.9% general rate increase beginning next Monday that should impact approximately a third of our business. David Cobb will provide specific details on our yield management metrics later in the call. We were pleased with the year-over-year increase in both average daily shipments and tonnage that we experienced in the fourth quarter. Our tonnage increase has steadily improved in each month of the fourth quarter due to strength in our LTL business. David will also provide the monthly tonnage stats and some additional color on the mix of our business in a few minutes. As more freight moved through the Asset-Based network, cost management and improved operational efficiency contributed positively to fourth quarter profitability. Many of the operational metrics used to manage the business showed improvement. Our financial results certainly benefited from efficiencies gained from handling more shipments and freight through the ABF network. However, the cost efficiencies we are experiencing also reflects the benefits of new systems and planning tools implemented throughout the year. Growth in revenue per shipment contributed to an increase in ArcBest Asset-Light revenue despite our handling fewer shipments during the quarter. The reduction in shipment count was associated with changes in the mix of customers and business opportunities with them. However, we are pleased with the relationships we're building as we continue to pursue a large opportunity for growth. On a per shipment basis, direct costs were below last year and total operating expenses were flat with last year's fourth quarter. The combination of higher total net revenue and flat operating expenses resulted in a year-over-year increase of ArcBest's Asset-Light fourth quarter operating income. Within our customer base, we are encountering more and more opportunities to combine various transportation elements into a complete logistics solutions that we are managing on behalf of our customers. During the recent quarter, our success in winning a significant number of these opportunities positively contributed to profitable growth and improve Asset-Light margins. We are currently bidding on additional opportunities in this area that if we're successful in winning those new accounts, should support continued managed transportation growth in 2019. Strong event growth versus the same period last year and an increase in average repair cost per event contributed the FleetNet's fourth quarter revenue improvement. The growth in events was the main driver of higher total of higher total net revenue despite a reduction in average net revenue per event. This was the primary factor contributing to fourth quarter operating income that was comparable to last year. In 2018, we continue to have great results with our nonunion health care expense as these costs decreased over $5 million compared to 2017, a reduction of approximately 12%. Combined with the $5 million decrease in these costs in 2017 compared to 2016, the annual cost of nonunion health care for ArcBest is $10 million below what it was two years ago. We are pleased with this remarkable cost saving when most companies are experiencing significant annual health care costs increases. During 2018, we continue to take actions to enhance shareholder value. Throughout the year, we paid our $0.08 per share quarterly cash dividend and we bought back over 246,000 shares of our stock for a total price of $9.4 million. Under our existing repurchase program, we have approximately $22 million of purchase availability. And now, I'll turn it over to David Cobb for a discussion of the earnings results and operating statistics.

Thank you, Judy, and good morning, everyone. Let me begin with some consolidated information. Fourth quarter 2018 consolidated revenues were $774 million compared to $711 million in last year's fourth quarter, a per day increase of 8.9%. On a GAAP basis, we had fourth quarter 2018 net income of $0.57 per diluted share compared to the $1.37 per share last year. As detailed in the GAAP to non-GAAP reconciliation table in yesterday afternoon's earnings press release, adjusted fourth quarter 2018 net income was $1.01 per diluted share compared to the $0.42 in the same period of 2017. ArcBest's fourth quarter 2018 effective GAAP tax rate was 26%, which was comparable to the fourth quarter tax rate on a non-GAAP basis. For the full year of 2018, consolidated revenues totaled $3.1 billion compared to $2.8 billion in 2017, a per day increase of 9.3%. Full year earnings per diluted share were $2.51 compared to $2.51 compared to $2.25 in 2017. On a non-GAAP adjusted basis, as outlined in our earnings press release, 2018 earnings were $3.86 per diluted share compared to the $1.34 in 2017. In 2018 total net capital expenditures, including equipment financed, equaled $134 million, which was below previous expectations reflecting shifts in the timings of some expenditures into 2019. 2018 revenue equipment totaled 90 million, the majority of which was for ArcBest's Asset-Based operation. Depreciation and amortization costs on property, plant and equipment were $104 million. In addition, amortization of intangibles assets was $4.5 million in 2018. For 2019, total net capital expenditures are estimated to range from $170 million to $180 million. This includes revenue equipment purchases of approximately $90 million, primarily replacements for ArcBest's Asset-Based operation. The increase in the 2019 capital expenditure estimate is primarily associated with real estate projects, dock equipment, including forklifts and technology investments. ArcBest's depreciation and amortization costs on property, plant and equipment for 2019 are estimated to range from $110 million to $115 million. This expense range does not include amortization of intangible assets, which were estimated to be approximately $4.5 million in 2019. For full year of 2018, GAAP was 20.3%. The effective tax rate reconciliation table on Page 10 of our earnings press release shows the reconciliation of GAAP to non-GAAP effective tax rate, which was 26.5% in 2015. We currently expect our full year 2019 non-GAAP tax to be approximately 27%, while the effective rate in the quarter may be impacted by items discrete to that period. We ended the fourth quarter with unrestricted cash and short-term investments of $297 million. Combined with the available resources under our credit revolver and our receivable securitization agreement, our total liquidity currently equals $495 million. Our total debt at the end of 2018 of $292 million includes the $70 million balance on our credit revolver, the $40 million borrowed on our receivable securitization and $182 million of notes payable, primarily on equipment for Asset-Based operation. The composite interest rate on all of our debt is 3.4%. Full details of our GAAP cash flow are included in our earnings press release. As previously disclosed, technology investments have been made in ArcBest technology is in a variety of areas to improve our customer experience and also optimize our operating segments. For example, in the Asset-Based segment, we have described work to improve city pickup and delivery productivity with enhanced tools such as barcoding, tablets and scanning equipment. In the ArcBest Asset-Light segment, common coding systems and predictive analytics tools are currently in use and undergoing continuous development, all of which require ongoing investments. ArcBest technologies serves as an incubator for the initial phases of technology development. Once a level of success is demonstrated, these initiatives may be transitioned into the field and operating segments for more extensive and live testing feedback in an ongoing development. As a result, we expect that our Asset-Based business will incur additional cost of approximately $10 million during 2019. We estimate the cost impact to increase throughout the year, with approximately $1.5 million estimated in first quarter of 2019. Such investments are important for us to continue meeting and exceeding our customers' expectations in a rapidly evolving market place. If successful, we expect there would be some future benefits for the broader application of these initiatives in our business. Asset-Based fourth quarter revenue was $549 million, an increase of 10.4% compared to last year. Asset-Based quarterly tonnage per day increased 2.8% versus last year's fourth quarter. And for fourth quarter 2018 by month, Asset-Based daily total tonnage versus the same period last year increased by 2.3% in October, increased by 2.8% in November and increased by 3.3% in December. As Judy mentioned earlier, these total tonnage figures included the impacts of solid LTL-rated tonnage gains as monthly increases were in the upper single-digit-percentage range throughout the quarter. Truckload rated shipments in the ABF Asset-Based network were below the prior year by more than 10% in each months of the fourth quarter as availability of these shipments at acceptable price levels was more limited. In addition with the growth we have been experiencing in our LTL-rated business, we're utilizing more of our available equipment and workforce capacity to serve the needs of our customers with LTL needs. Fourth quarter total shipments per day increased by 4.2% compared to last year's fourth quarter. This was the first quarter of 2018 that our average daily shipment count increased versus the same period last year. Fourth quarter total billed revenue per hundredweight on Asset-Based shipments was $34.90, an increase of 7.9% compared to the fourth quarter of last year. Excluding fuel surcharge, the increase in fourth quarter billed revenue per hundredweight on Asset-Based LTL-rated freight was in the mid-single digits. We secured an average 4.6% increase on Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter. As we look ahead to 2019, we will continue to focus on maintaining acceptable pricing levels across the Asset-Based account group. Earlier, Judy mentioned, next week's Asset-Based general rate increase whose timing illustrates our continued emphasis on yield improvement and our belief that the pricing environment is healthy. This year, as we compare back to 2018 when quarterly year-over-year yield increases range between 8% and 10%, we expect our average price increase percentages to return to more normal levels in 2019. On an adjusted basis, our Asset-Based fourth quarter operating ratio was 93.3% compared to 96.1% in 2017. For the full year of 2018, ArcBest's Asset-Based revenue was $2.2 billion compared to $2.0 billion in 2017, a per day increase of 8.9%. Asset-Based 2018 total tonnage per day was flat compared to the previous year of daily shipments decreased by 3.3%, resulting in a 3.3% increase in total pounds per shipment. On an adjusted basis, our Asset-Based full year operating ratio was 93.5% compared to 97.1% in 2017. In total, the average daily revenue in ArcBest's Asset-Light businesses increased 10% over last year's fourth quarter, reflecting revenue growth in both the ArcBest segment and the FleetNet segment. On an adjusted basis, fourth quarter Asset-Light operating income was $7.8 million compared to $5.5 million last year. Full year 2018 revenue for the Asset-Light businesses was $976 million compared to $863 million in 2017, a daily increase of 12.9%. Full year 2018 adjusted operating income for these businesses was $26.5 million compared to $23.7 million in 2017. Adjusted full year 2018 Asset-Light EBITDA was $43.4 million compared to adjusted EBITDA of $38.1 million in 2017. Yesterday afternoon, we filed an 8-K that included our fourth quarter of 2018 earnings release, along with an exhibit that provided some additional information about our current quarterly financial results, along with our recent business levels and our future expectations on certain financial metrics. This information should be helpful in modeling our expectations for 2019 financial results. Now I'll turn it over to Judy for some closing comments.

Thanks, David. Now for the quarterly company highlights. In October, Inbound logistics recognized ArcBest as the top 100 trucker for 2018 on its annual list for the fifth consecutive year. Also in October, four ABF drivers were selected as finalists for America's Road Team for 2019-2020, Sammy Brewster, Scott Davis, Brian Petrovcic and Todd Wilemon and I congratulate each of them for this outstanding honor. Just this week, the ATA announced the Road Team winners and we were very pleased to see Sammy, Scott and Todd among the 18 drivers across the country who were selected. These drivers will immediately begin their service as the premier group of trucking industry ambassadors, creating awareness of the importance of safety in the industry for the general public, elected officials and members of the media. Once again, congratulations to each of them. In addition, as I mentioned last quarter, ABF Freight driver, David Boyer was named National Truck Driver of the year by the American Trucking Associations. We and the ATA were pleased to honor David, a true ambassador for his profession, as several events in Fort Smith and around the country during the quarter to recognize his accomplishment and his 40 years of dedicated service at ABF. And finally, ABF was amongst 40 companies in November to receive the SmartWay Excellence Award for superior environment performance and additional actions to reduce freight emissions. And now, I'll share some thoughts about 2019. Certainly, after the remarkable performance of 2018, some of the quarterly comparisons this year will be challenging. We will continue to monitor the marketplace for any dips or changes in the strong trends of last year. This is one track that we are focusing on as we always do and we intend to effectively manage through any environments and emerges. On a parallel track, we are very positive about the direction we are heading as a unified company, particularly as a result of the strategic choices we've made to offer customers more supply chain solutions through more supply chain solutions through streamlined points of access. In past years, when our primary offering was LTL, conversations with some customers naturally revolved around freight. Now with more solutions on our disposal and expert advice about how to solve our customer's problems, we are able to have conversations that are much deeper and value added in terms of the overall supply chain optimization and mode selections. Our customers appreciate the optionality we bring, combined with assured capacity. That in turn has been enabled by the resources that we've invested to improve our operations, facilitate ease of doing business and ensure that our that our sales team has a total view of the customer. There'll be more of this to come as we continue to invest in digital business platforms and other technologies that enhance our engagement with customers and carriers. To conclude, I want to thank our entire team for an outstanding year. It is gratifying for me and the entire management team whom we see our goals realized in such a tangible way for employees, customers and shareholders. And now, I'll turn it over to David Humphrey to conduct our question-and-answer session.

Okay Judy. Thank you for that. And we will now begin our question-and-answer session. First of all, let me note that we had a couple of questions on monthly tonnage growth and contract renewal rates that were directly addressed in our opening remarks a few minutes ago. So I won't read those questions now. We had similar questions from Will Milby of Seaport, Chris Wetherbee of Citi, Jason Seidl of Cowen and Stephanie Benjamin of SunTrust on contract rates and expected price increases in 2019. These included, do you believe the 4% to 5% contract rates achieved during 2018 are a realistic target for 2019? Can you provide some color on the pace of LTL contract renewals in fourth quarter and in January? What is your expectation for revenue per hundredweight growth in 2019? And finally, is LTL pricing still holding up? David, do you want to take that one?

Yes, I will. A lot of questions here, David, and thanks for the interest and questions about the pricing environment. As mentioned earlier, we anticipate our average annual price increases to return to more normal levels in 2019, particularly, in light of the yield improvement in 2018. Over longer periods of time, our average annual revenue per hundredweight increases had been in the low single digits and reflects individually negotiated results. With respect to our Asset-Based business, contract renewal results are favorable so far in January, but we are seeing these coming slightly below our fourth quarter 2018 average of 4.6%. However, we do still believe the market is rational in terms of pricing. We have raised prices for new business and we have set higher margins for ourselves for those operational inefficient shipments.

Okay. Will Milby asked if our locked-in wage and benefit inflation gives us a pricing advantage in 2019? He wanted to know if we will try to leverage this to drive volume and market share growth. Judy, do you want to give your thoughts?

Sure. I certainly appreciate Will's questions. On the majority of our Asset-Based labor costs, our current union labor contract includes total annual cost increases that average about 2% per year for the life of the contract and that will end in June of 2023. Let me first say that we think that is very manageable. It's at the cost increase level that we've outlined, and we feel fortunate to have known labor cost stability over the next 4.5 years. Although our cost structure plays a role in our pricing decisions, our decisions are made on an account-by-account basis and are typically more heavily influenced by the value we provide, the marketplace conditions that are in place and the impact that the account has on our network. We do see an opportunity to grow our business, particularly, with the solutions we provide and the capacity that we're offering customers.

Okay. Brad Delco of Stephens and Will asked whether falling fuel prices during the quarter had any noticeable impact on either the top line or the bottom line at ABF Freight?

Thanks Brad and Will. I agree. Diesel fuel prices have moved lower from the recent highs back in October of 2018. It's important to remember that that will impact the total revenue per shipment on both our Asset-Based and our Asset-Light businesses. On average, though, diesel fuel prices were relatively comparable from third quarter to fourth quarter. I would point out, though, that the year-over-year level of increase was lower in the fourth quarter than the year-over-year comparison that was in the third quarter. As we reset our fuel surcharge every week, we do believe that this did not have a significant impact on our fourth quarter results.

Another question we received asked if we foresee much year-over-year impact from the Easter holiday in 2019, given the timing that split first quarter and second quarter last year compared to Easter being in late April this year?

Yes David I think it’s important to say that based on historical freight levels, we always count Good Friday as half a day in our quarterly working day's calculation. There are some interesting calendar impacts in 2019, though. Because of the timing of the holiday as well as how the calendar falls, there'll be a half business day less in both first and second quarters in 2019 when you compare that to the same periods last year and that will impact total business levels. But there are always other factors in the economic and competitive environments that impact these periods as well, though.

Another question mentioned that we spoke of better revenue per shipment within the Asset-Light ArcBest segment. Was this due to mix or was it from getting better pricing from customers? And as a follow-up, you removed the wording surrounding tight equipment capacity and competitive pricing on the cost side. Does this reflect a more balanced freight environment? And do you believe this is a trend that continues through 2019?

Our fourth quarter revenue per shipment increases do reflect better pricing from customers, and we agree that there is more balanced capacity. Our team did an effective job in sourcing capacity at competitive prices in 2018, and we see our success improving in that area as we enter 2019.

We had a few questions from Stephanie, Jason and Will on the impact of trade tariffs, particularly, regarding pull forward of freight into 2018. There were questions about whether this was impacting first quarter business levels?

I'll take that one, David. We have heard from some customers that they pulled some business forward into the third and fourth quarters of 2018. I think, it's difficult to measure though, but we believe that this has created some weakness so far in 2019, and I think our team is ready to work with our customers if they think about and consider adjusting their supply chain because of these issues.

Okay. We've had several questions about demand trends in our Asset-Based business that came from Ravi Shanker of Morgan Stanley, Chris Wetherbee, Stephanie Benjamin and Jason Seidl. These included, are you seeing any sign of a deceleration in underlying demand in particular end markets? It appears that tonnage decelerated in December and January. Do you provide some color on the current demand environment? Is the January slowdown largely comp-driven or is activity in the overall U.S. economic environment reflecting a deceleration? Are you seeing any impact from loosening truck capacity?

Well, I appreciate the answers on this issue and as we turn the page from 2018 into 2019. So with respect to our Asset-Based business, when we look at normal sequential trends, January compared to December, the comparison on both tonnage and a shipment basis is really falling out on the weaker end of historical averages. It's hard to speak to the end markets that are contributing to this result, based on the information we have. We could be experiencing some short-term impact from tariffs or the government shutdown or other factors, but it's really difficult to say we're certain at this point. Although, we're pleased with our increased LTL tonnage levels as we enter 2019, it is, I think, useful to point out that these trends are on the weaker end of our historical norms.

In the end, from an Asset-Light perspective, Brad Delco stated that it seems like supply and demand dynamics are becoming more balanced across the truckload market and contract rate expectations are moderating. He wanted our thoughts on those trends.

Well, I appreciate Brad's question. We agree with Tim that the truckload market really has moved to be more balanced, as I said a few minutes ago. With respect to our Asset-Light business, in January, we are experiencing slight weakness in revenue per shipment and daily shipments and that appears to relate to this more balanced market. However, we continue to see good business opportunities with customers and having – or having better success with our carrier partners as a result of some of these market changes. Net revenue per day is up and that reflects continued growth in our managed solutions and improvement in our ability to source capacity, which are positive for us. Our technology and analytics investments are also playing a role in our success, helping us to strike the right balance in this net margin.

Ravi Shanker mentioned that seasonality implies approximately 400 basis points of OR deterioration from fourth quarter to the first quarter, but the pricing initiative seems to have changed that. How should we think about OR seasonality going forward?

Yes, thanks, Ravi. We agree with you that the historical average increase in the Asset-Based operating ratio from fourth quarter to first quarter has been approximately the 350 to 400 basis point range. When we look back the fourth quarter 2017 to first quarter 2018, Asset-Based operating income change, it was really much better than the historical average. You think about the significant yield management improvements that we made due to the space-based pricing initiatives that really contributed to that improvement. The prior year sequential operating ratio was also impacted and benefited from the strong pricing on spot quoted truckload-rated shipment. We did mention in the 8-K that the sequential change in the first quarter 2019 Asset-Based operating ratio should be positively impacted by the timing of ABF Freight's February 4 general rate increase, which will be in effect during the last two months of the first quarter 2019. But also in the 8-K, we mentioned some other cost items that could effect the sequential comparisons versus history and those things should be considered as well.

Chris Wetherbee asked if we can clarify our comments regarding the historical sequential OR progression from first – from fourth to first quarter in the Asset-Based segment and whether that includes our captures, the potential for accruing a union profit-sharing bonus? He wondered if we were to accrue for the union bonus, would it have a negative impact on the 350 to 450 basis point historical fourth quarter to first quarter OR change?

Thanks, Chris, for the clarifying question. We have some commentary in the 8-K about this and depending on your operating ratio expectations for the quarter, an accrual for the union incentive in the first quarter would be an expense item that impacts the historical comparison. We value the engagement of our employees and believe that the union incentive program further aligns our growth objectives, but it also aids in attracting and retaining drivers and other high-quality employees.

Ravi Shaker wanted to know what levers we can pull to maintain a strong performance in case of a slowdown?

Ravi's question, David, is a good one and when you are thinking about changing environments, it's certainly useful to have your hands on those levers that you can pull. We have a number of levers that we can pull to adjust our operations as our business levels change, and we have a lot of experience in doing that. Some of our actions, I'll point out, can be implemented really quickly and others take more time. With respect to our Asset-Based business, we have the flexibility to adjust variable expenses. Some examples of that include headcount, cartage, rented equipment and other third-party transportation costs can be adjusted to shipment levels, although we do keep the service that we're providing to customers in mind as we're making these changes. I'd point out that in more severe downturned situations, we have ability to reduce equipment levels and facility costs if needed. So there's a number of levers we can pull and, again, we're very experienced in working through those kind of changes.

Next, we had questions about some of the expense items we discussed in yesterday's 8-K. Brad Delco mentioned that are a lot of discrete expense items included in our prepared remarks. Offset by the GRI announcement in February, it is over two months earlier than last year. As a result, it seems like there are a lot of puts and takes that could affect our Asset-Based margins in 2019. Could you give us any sense whether or not you feel these additional expenses will prevent you from expanding LTL margins in 2019? Chris Wetherbee and Scott Group of Wolfe Research pointed out that a number of expenses will impact both Asset-Based in total company operating profit. Based on these expenses and slowing tonnage growth, do we think ArcBest is likely to grow operating profit in 2019?

Well, we appreciate the interest in understanding these issues. We did mention a number of items for you to consider in your modeling. Some of those were just for information and others were related to investments that we wanted you to understand, and we anticipate these investments creating future benefits in our operating results. But let me first say that our team executed really well in 2018 and that resulted in a great year for us. But as we turn the page into 2019, we're aware of a number of macro effects that could impact our business, and we'll have to adjust to them, but our team continues to execute well and is very focused on growing our business and actions that can be taken to improve margins. We believe the additional expenses that we outlined are prudent and necessary to grow our business over the long-term and that's really regardless of short-term tonnage trends. We don’t really give guidance on the profit outlook, as you know, but we have seen our strategy to offer more logistics solutions to customers, resulting greater margins, overall profitability and account retention, which are all positive things.

We had a question on our cash levels. You have approximately $11 of cash per share on the balance sheet. What are the top priorities for cash in 2019?

I enjoyed talking about this one, David. We're pleased with the solid cash flow generation in 2018. We continue to have a balanced capital allocation strategy, though, as we talked about. We believe that our continued investment in our business and the existing services that we have, with our CapEx plans and our technology and process initiatives that we talked about, all those to grow the company and developing operating efficiencies, those are really our high priorities. A part of our strategy, though, is to return capital to shareholders. We've got a dividend – quarterly dividend program and a share buyback program. And in the share buyback program, we have about $22 million remaining available there. Although we aren't working on really anything specific, we do continue to review potential acquisition targets.

Next, what types of investments are you making around digital business platforms? Should we think of this as something to compete with other digital brokerage platforms? Or is this something different?

We really see an opportunity to address and improve our customer experience and our carrier experience through the development and improvement of our digital business platforms and we've got an increasing focus there. Our customers are desiring to interact seamlessly with our people in our digital channels and that influences our thinking. The work we're doing, we believe, will attract more business and help us more effectively serve existing customers and more effectively serve those new customers that we bring on. We believe we have the same opportunities on the carrier side in terms of improving our interactions and the seamless nature of the channels that we do business with them with. And so we're excited about our initiatives in this area and it's an increasing focus for us and we look forward to talking with you more about it.

Brad Delco wondered what impact the 6% shipment growth combined with flat tonnage have on incremental margins? Is it wrong to think of shipments as a direct driver of operating expenses, while tonnage is typically the driver for revenue?

Yes. Thanks, Brad. I agree, I think, as you point out, shipments are a direct driver of operating expenses and tonnage is typically the driver for revenue. However, we have implemented the CMC space-based pricing program, which addresses the density, which is something that should be considered as well. And as we've mentioned in our 8-K, the flat tonnage is a result of mid-single digit growth in our LTL-rated shipments, offset by double-digit declines in our truckload-rated spot business. And because the truckload-rated shipments are larger and require less handling, they generally drive line-haul cost and not necessarily so much the S&Y cost. Our January LTL tonnage increases are more in line with shipment increases with – along with low single-digit increases in LTL revenue for shipment.

Chris Wetherbee asked us to elaborate on our technology investments.

I appreciate Chris' interest in this area, as it becomes more of the conversation every day. Historically, we've worked on a number of initiatives and some examples of those are to improve our city operations, create better awareness of our customers' multiple logistics needs through a single view of the customer and improving our website capabilities for more digital and direct access to our solutions. Our additional investments that we're making going forward really acknowledge the fact that shippers are expecting increasingly faster delivery times, they want greater shipment visibility and more cost-effective solutions for their freight because their margins are being impacted. We're investing in our business to promote growth and to optimize our costs and the $10 million of additional costs that we talked about in our Asset-Based business are related to developmental technologies that we believe will really help us improve operations and the customer experience. The costs in 2019 are over and above the normal technology spends. However, we really expect that there would be some future benefits for the broader application of these initiatives in our business.

Another analyst asked if can provide a sense of our expectations for cost inflation, excluding the labor contract.

Excluding the labor contract, I think, fuel is one that's hard to predict, obviously. And all, I guess, really what I would say, there is that we're just not aware of any particular cost areas that we expect to increase at a level above the norm.

We'll conclude the call with two questions from Stephanie Benjamin. First, could you provide specific examples of the technology savings and other cost-cutting initiatives that were in place during fourth quarter to help drive margin improvement for the Asset-Light business?

Yes, thanks, Stephanie. As mentioned earlier, our Asset-Based and Asset-Light businesses have benefited from recently implemented technologies. And in the ArcBest Asset-Light segments that you're asking specifically about, we've implemented common quoting systems, capacity sourcing systems and predictive analytics tools that are in use and undergoing continuous development and these – all of these systems are helping us improve our margins.

And then lastly, Stephanie asked if there was any likelihood that we want to expand our expedited business in the future? Is there an opportunity for expedite to become a bigger portion of overall company revenue?

Well, yes, I appreciate Stephanie's commentary there. And we are very pleased with our acquisitions that we made all the way back in 2012 of Panther that is now becoming a part of our integrated solutions that we have as a company. Stephanie, we have outlined our longer-term goal to increase our Asset-Light business, including the expedite business to around 50% of our total revenues and we are working on a path to make this happen. There's very little overlap in our Asset-Based in this expedite business customer base. So we see an opportunity for growth there. And we've enjoyed some success with our sales force, cross-selling our services to the ground expedite customer base and we're pleased about that. Another thought to add here is we lap the two-year anniversary of the restructuring of our company under the enhanced market approach, which brought together so many of our teams internally to serve the customer. We really – we've surveyed customers and we've gotten feedback from them and the response has been overwhelmingly positive on our efforts to create that seamless experience for them and to create better and more easy access to our capacity sources. And all of that just gives us confidence in our approach and the direction that we have as a company to grow in these Asset-Light service offerings. So, thank you.

Okay. Well, that concludes our question-and-answer period. I'm pleased to say that we were able to address all of the questions that we received yesterday afternoon. We appreciate everyone sending those in, and we appreciate your interest in our company. We want to thank you for joining us this morning. And we appreciate your interest in ArcBest. This concludes our call. Thanks a lot.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.