ArcBest Corporation (ARCB) Q2 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to the ArcBest 2Q 2021 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Monday, August 2, 2021. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead, sir.

Welcome to the ArcBest second quarter 2021 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President and Chief Executive Officer of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. We thank you for joining us. In order to help you better understand ArcBest and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risks. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release and the Company's most recent SEC public filings. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Judy.

Thank you, David, and good morning, everyone. As you saw in our release, our second quarter revenue increased 51% over second quarter of 2020, when we were impacted by the economic factors of the COVID-19 pandemic. I am very pleased to report that we achieved the highest quarterly operating income in ArcBest’s history and record quarterly revenue, and we've had our best first half ever in terms of consolidated revenue and operating income. These records reflect our success with customers as a leading logistics company with assured capacity options. So far this year, we are experiencing strong customer demand, resulting in shipment and tonnage growth and a very positive industry pricing environment. On a non-GAAP basis, our second quarter Asset-Based operating ratio was in the 80s for the first time in many years, and our Asset-Light profits grew substantially. As we enter the third quarter, customers continue to experience high levels of supply chain disruption, and we are effectively adapting our approaches to their needs. 2021 has been the year for customer conversations regarding the best holistic solution for their supply chain, and our strategic positioning over the last decade enables us to grow with them as their businesses recover. We have a data-driven approach, and the visibility we have ensures proper alignment of ArcBest’s resources with customer requirements. We are focused on listening to our customers, which helps us be more agile and responsive and to know when it's necessary to pivot to new solutions. As I mentioned, we anticipate growth in our business. Our opportunity pipeline has grown significantly year-over-year through the first half of 2021 and accelerated sequentially in the second quarter compared to the first. Customer win rates are reaching all-time highs. In order to address this growth and serve our customers, we are increasing hiring and recruiting efforts, optimizing the ABF network, including linehaul, dock and city operations, taking delivery of new ABF equipment and placing 2022 orders early, expanding ABF facilities through investments and upgrades, increasing recruiting resources and equipment for our expedite and truckload fleets and investing in various technologies, including those to make it easier to match shipments with available capacity. Speaking of technology, we continuously invest in technology and innovation to improve operations and further enable a best-in-class customer experience. Innovation is more than a mindset for us. It's simply part of everything we do. And now, I'll turn it over to David Cobb for his comments.

Thank you, Judy, and good morning, everyone. Just as a reminder, our year-over-year comparisons to last year's second quarter were significantly impacted by the effect of the pandemic, so I want to begin with some consolidated information. Our second quarter 2021 consolidated revenues grew 51.3% to $949 million compared to $627 million in last year's second quarter. On a GAAP basis, we had second quarter 2021 net income of $2.27 per diluted share. This compared to net income of $0.61 per share last year. As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release, our adjusted second quarter 2021 earnings per diluted share grew 194% to $1.97 compared to $0.67 per share in the same period last year. ArcBest's second quarter 2021 effective GAAP tax rate was 17%. During the second quarter, the rate was impacted by several items identified in the effective tax rate reconciliation included in tables to the earnings release. Large discrete items included the sale of a portion of the Asset-Light moving business, settlement of share-based payment awards vested during the quarter and changes in cash surrender value of life insurance. For the first six months of 2021, the effective tax rate on a non-GAAP basis, which was used to calculate the non-GAAP EPS, was 27%. Under the current tax laws, we expect our full year 2021 non-GAAP tax rate to be in a range of 26% to 27%. Of course, the effective GAAP tax rate may be impacted by discrete items that could occur during the remainder of the year. We ended the second quarter with unrestricted cash and short-term investments of $423 million and total debt of $238 million, resulting in cash net of debt of $185 million, an increase of $100 million since the beginning of the year. Our debt at the end of the second quarter, which totaled $238 million, includes the $50 million balance on our credit revolver and $188 million of notes payable, primarily on equipment for our Asset-Based operation. The composite interest rate on all of our debt was 3%. Our cash and short-term investments combined with available resources under our credit revolver and our receivable securitization agreement provides total liquidity of $662 million. The increase in our net cash position is primarily driven by solid operating results and timing of capital expenditures. The original build schedule as well as delays from manufacturers for our Asset-Based and Asset-Light revenue equipment has the majority of the units being delivered in the second half of the year. As a result, our capital expenditures net of asset sales totaled only $15 million for the first six months of the year. We currently expect net capital expenditures to range between $160 million and $170 million for the year, so we have some catch-up coming in the second half of the year. That CapEx range includes some additional facility upgrade opportunities that we plan to complete in 2021. Last quarter, we also mentioned an accelerated view of our 2022 revenue equipment plans in order to increase our fleet in support of customer demand. As Judy described earlier, investments and upgrades in our Asset-Based network are a priority. Our customer management structure, technology platform, our leading yield management program, combined with logistics solutions together placed ArcBest in an increasing number of customers' supply chain conversations, thus improving customer retention. These factors have driven us to have greater confidence in our shipment and revenue growth through business cycles. We recognize that we have opportunities to invest in our facility capacity that will generate solid returns. In the last year, we have moved into a new lease distribution center in Kansas City. We have committed to another distribution center in Salt Lake City. We're currently working on expanding and updating 10 other leased and owned locations. We are also expecting to allocate additional resources in the range of $50 million to $75 million on an annual basis above our historical CapEx levels toward expanding existing service centers as well as upgrades that would also improve energy efficiency. As I mentioned, a portion of our investments are included in our updated 2021 CapEx, but many of these projects are longer term and will impact 2022 and future years. As we have discussed before, we are seeing our customer-centric approach of providing logistics solutions pay off as more customers increasingly rely on our team for supply chain expertise. ArcBest acts as a trusted partner in understanding and responding to our customers' needs. This approach allows us a more strategic perspective that we can leverage on our customers' behalf through intelligent analytics and access to capacity across multiple modes of transportation, whether through our own assets or through other providers. So, continued technology investments and capacity additions advance our ability to serve these needs. Likewise, we are staying close to transactions in the logistics space and are mindful of the opportunities that acquisitions can provide to add scale to our platform for serving our customers' capacity needs. Along with these opportunities to invest in positive net present value projects, we continue to return capital to shareholders with a dividend program and share buybacks. These are good opportunities for utilizing excess cash as we believe that our share price is undervalued and should trade higher. Earlier this year, we exceeded our share repurchase program, and we repurchased $7 million of our stock during the second quarter. Full details of our GAAP cash flow were included in our earnings press release. Our Asset-Based second quarter revenue was $653 million, an average daily increase of 42% compared to last year. The second quarter non-GAAP operating ratio in the Asset-Based business improved 440 basis points sequentially versus the first quarter of 2021. But adjusting for the large property sale gain in the first quarter, the Asset-Based business produced a 600 basis-point sequential improvement. Asset-Based quarterly total tonnage per day increased 22.7% versus last year's second quarter. For second quarter of 2021 by month, Asset-Based daily total tonnage versus the same period last year increased by 28.9% in April, increased by 21.3% in May, and increased by 18.7% in June. Second quarter total shipments per day increased by 13.5% compared to last year's second quarter. Second quarter total billed revenue per hundredweight on Asset-Based shipments increased 15.4%, was impacted by higher fuel surcharges versus last year. Revenue per hundredweight on LTL-rated business, excluding fuel surcharge, improved by a percentage in the mid-single digits. We secured an average 6.7% increase on Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter, which was one of the highest second quarter increases we've had in many years. This compares to the 5.6% increase we secured on these customer pricing agreements during the first quarter. Preliminary business trends for July have been provided in the Form 8-K exhibit to the press release. July daily average tonnage and shipments were above the prior year month by percentages in the mid-single digits. As previously mentioned, the Asset-Based business managed an elevated level of household goods, U-Pack shipments during the second quarter. These shipments are larger than the typical LTL shipment and stay in our system longer. As customer demand for our core LTL services continues to strengthen, we have moderated the number of these U-Pack household goods shipments as well as other spot-quoted shipments in order to serve our growing base of principal customers. As a result, the sequential change in daily average tonnage from June to July was below our historical average because of this greater than average sequential decline in these heavier U-Pack and spot shipments. Importantly, for our core LTL business, the sequential changes in average daily tonnage and in revenue per shipment were higher than historical averages. As a reminder, beginning in mid-third quarter of 2020, we experienced significant demand in year-over-year growth in these larger U-Pack shipments. Going forward, our tonnage and shipment comparisons to the prior year are expected to be impacted by this unique element of our business as we continue to manage the network to serve our customers and optimize revenue. In total, the revenue in ArcBest Asset-Light businesses increased 67% versus last year's second quarter, reflecting strong demand in our ArcBest segment and improved events and revenue per event in the FleetNet segment. Second quarter Asset-Light operating income was $16.3 million compared to $2.1 million last year. We sold the labor services portion of the ArcBest Asset-Light segment’s moving business during the quarter, resulting in a gain of $6.9 million. On a non-GAAP basis, excluding the gain on net sales, second quarter Asset-Light operating income was $9.3 million. Second quarter of 2021 Asset-Light EBITDA was $19 million, including the benefit of the moving business sales compared to EBITDA of $4.9 million in second quarter 2020. Preliminary Asset-Light business trends for July have been provided in the Form 8-K exhibit to the press release. That Form 8-K that was filed this morning with our earnings release included an exhibit that I mentioned, which includes some additional information about our current quarterly financial results along with our recent business levels and our future expectations on certain financial metrics. Now, I'll turn it over to Judy for some closing comments.

Thank you, David. Over the past several years, we purposely integrated our solutions so that we could more effectively serve and partner with customers. This approach is serving us well and driving growth as we strengthen relationships with customers and carrier partners while also creating new relationships. We are one of only a few full-service logistics companies with both asset and asset-light capacity sources, and we have almost 100 years of experience adapting to changing customer needs. Today, we are well-positioned to meet those needs and exceed their expectations. It's important to us that we meet the customers where they are and in the channels they desire. Looking forward, we know the rate of change will continue to accelerate, but we are demonstrating agility that is enabled by listening to them. The customer desire for unique logistics solutions is very important and staying closely in tune with expectations as they evolve, will position us for continued success. We are confident in our strategy and the underlying strength of our business, and we're focused on positioning ArcBest for long-term growth in any environment. As I mentioned last quarter, we've taken several steps toward developing a more robust environmental, social and governance program. As an update, we are currently compiling our latest ESG report. We've hired a corporate social responsibility program manager. We are developing our diversity, equity and inclusion strategy and road map. We are consolidating our data into a more usable format so that we can establish environmental goals and we are undergoing a materiality assessment project. Our goal with the assessment is to prioritize our long-term initiatives across all aspects of ESG. We strive to be a responsible corporate citizen in all of our communities, and we've always been committed to conducting business in a highly ethical way. We are committed to more publicly documenting our actions in regard to sustainability, employee well-being, community involvement, governance and ethics. I also want to say a word about our team members. Our people drive our success, and they are the strength of our value-driven culture, creating a differentiator for our Company. I'm very thankful for our thousands of great employees who are dedicated to helping customers and living out our values every day. And now, I'll turn it over to David Humphrey for our question-and-answer session.

Okay. Frank, I think we're ready for some questions.

[Operator Instructions] Our first question comes from Jason Seidl with Cowen and Company. Please proceed.

Thank you, operator. Judy and team, I hope you guys are good this morning. I wanted to get a sense for this U-Pack business, which you guys were saying is going to roll over a bit on comparisons. Without putting any direct numbers on it, how should we think about the profitability of that type of business versus your traditional core network business?

Well, we typically haven't disclosed that specific information about really any of the segments of business. But, what I would point out to you is historically for many, many years, I think we developed that business back in 1997. Its peak season has been one that begins maybe in late April and runs through mid-September, something like that, just like what you would normally think. And I think, one reason why we bring it up is because the trends have really shifted since the pandemic, and we've experienced some strength in periods where we typically wouldn't. And it's a spot-quoted business. It's a truckload-graded, spot-quoted business that when combined with our non-U-Pack residential shipments tends to equate to about 11% or 12% of our shipments. That's been fairly consistent over many, many years. But I think what we're pointing out is as our published business, our core LTL business strengthens, again, this is a spot-quoted business, so we can manage it. And we have managed it down some whenever you look July to June. And I just think that's important whenever you're looking at the sequential trends. And incidentally, the core business trends are very good. So, we wanted to make sure that we gave you that color so that you could understand the demand strength that we're experiencing.

All right. So, all-in-all, a good thing, because you have the strength in the core business?

Well, yes, I think so. And when you look at all of our business options, we have more than ever. And it's interesting how we can work through that in a way that optimizes the business that we would like to. And it's fortunate for us that we have these spot-quoted businesses that we've experienced good success from, for all these years.

Okay. That's great color. On a follow-up, David, you talked about additional CapEx for improving a lot of the facilities. You said $50 million to $75 million above normalized levels. You said it's going to be definitely in '22, is this going to continue beyond '22? And is it all facilities or just on the non-asset-based logistics side?

Well, as Judy mentioned, we're seeing a tremendous opportunity I think in kind of our longer term business. And just what we're feeling from customers right now is part of it. But, we've done a lot of things in terms of over the years in technologies and changing structure of our customer management team and the yield programs that we have in place. So, all of this is really about our -- I guess, our confidence in our ability to grow. And so, I would suggest, right now, looking at this $50 million to $75 million number is on an annual basis. The timing of that I think is going to be in the air. We haven't pinned that down for how much is going to fall into 2022 at this point. We'll give you updates as we know more. But this would be primarily in our Asset-Based network is what we're looking at here to upgrade those facilities and hopefully expand many of them. And so, a lot of opportunity there. So, as those real estate projects are longer term and some places were challenging to get into, we may have to use some lease facilities, in certain cases, we would want to buy if we could. But anyway, hopefully, that helps.

No, it does. And I’ll look forward to the updates on just how many facilities you’re upgrading and type of door expansion we’re looking at.

Thanks a lot, Jason. I appreciate it.

Our next question comes from Ken Hoexter with Bank of America. Please proceed.

Great. Hey, Judy and Dave, congrats on the best OR in 15 years. It's definitely impressive. You did note in the 8-K that third quarter should be similar OR and stay in the 80s. Maybe just give your thoughts, Judy, on -- or Dave, on sustainability at this level, and thoughts going forward?

Yes. Well, first of all, Ken, I want to point out that we gave you the history there. We're not actually giving you the guidance of that. But, I know where you're coming from. And we do have good confidence about our business and the customer demand and the opportunities that we're working through. When we look at our overall business, it's really interesting the way that it's evolved, particularly with our strategic direction that we've had over the last 10 years. When we approach customers, we approach customers as a logistics company. And we see the opportunities really are growing. And it's interesting. In those conversations, it's great to be a company that is very capable. In other words, we have multiple ways that we can achieve a result for a customer. But, it's also important to have the assets involved in that conversation. And it's really the overall logistics approach that's bringing us these opportunities and increasing our confidence in terms of both, profitability and retention. And I was looking back, as I was preparing for this call, at some things that we've done in the recent years and thinking about the impact of all of that. And if you think through just the actions that we've taken since 2017, we put in place a cubic minimum charge. We made sure that we were getting the right value, so to speak, on those more bulky shipments that were taking up more space in the trailer. We also have introduced a transactional LTL, which is helping us fill into capacity and helping us with the imbalance in the system. We have increased, as David mentioned, visibility on those opportunities. The advanced analytics that we use and the tools that we have to really help us with the right business and focus at given periods of time really helps us with I think a more resilient business model, a more sustainable business model. And the hiring that we need to do and that we are doing is really something that is providing I think a unique circumstance, but also a significant challenge. And so, it's really, really important that as we bring people on that we're bringing them on to stay with us for a longer period of time. And we put a lot into that with training and development of our people. And we want to provide some consistency to them as well as ourselves there. And so, all that to say, I think, the overall approach that we use today versus what we had in place in the 20 -- mid-2015, 2016 range, it's just, I think, one that improves our profitability, improves our visibility and our customer management approach with customers is really improving our visibility and the opportunity set that we have. So, all of that helps me I think and others at our company be very confident in our ability to manage through any type of environment. And then, also just one last thing. If you look back to last year, our agility during the pandemic is really something that we take note of as well. So, even whenever it gets really challenging, we have the ability to adjust. And so, I'll leave it at that. Thanks, Ken.

Thanks, Judy. And just then, your thoughts on the capacity there being added, right? So, you're adding, others are adding capacity. Do you think that hurts over the long term in terms of what you need to take, or do you see a secular change here in LTL demand going forward?

I really think that there could be. I mean, it looks as if there's a change in secular demand. Hopefully, that's one that spans the test of time. But I know right now, there's a great demand for our network resources, and we're very-focused on utilizing those in the best possible way. And we're seeing this growth in e-commerce. I think the digital adoption by consumers and businesses over the last -- really, even in the last year is pretty exciting. And then, I think the growth that's coming from the industrial side is also something to take note of as well. But, sometimes it just boils down to who's able to be the most reliable. And I think our model with our low turnover in a relative sense in terms of drivers and the consistency and availability of our resources to serve customers is something that's going to continue to be very important, as we go through the next several years.

Our next question comes from Jack Atkins with Stephens Incorporated.

Okay, great. Good morning. Congrats on a great quarter here. So, I guess, Judy, let me kind of ask you about capital allocation for a moment. You guys have about 11% or 12% of your market cap in net cash right now on the balance sheet. I know there are a lot of opportunities to invest in the business. But I guess, don't you have the flexibility also to maybe be a bit more aggressive on the buyback? I was just curious to understand why you guys aren't being more aggressive, given the significant discount you're trading at relative to historical averages and your nonunion peers?

Well, I think, the basic answer to that is, that is a part of our overall capital allocation program. We have certain targets. I think we've got $42 million left on our share repurchase that we have available to use and we intend to use it and as well as our dividend. And we've outlined, I think David went into a pretty significant amount of detail in his prepared remarks about the uses of capital that we see. And what we're describing is what for us is a good investment backdrop for use in our Asset-Based business in terms of increased level of spending for equipment and some increased levels of spending on real estate. Now, realize, we're in the places that we should be. We're a mature company. We have facilities that are well-placed, but we do have expansion needs. We have some upgrade needs. We also see an opportunity to advance in the environmental area and create some efficiencies in some of these facilities. So, we really feel like, from an investor point of view, those are of interest as well. And so, our plan is to have some of our resources used for an increased level of capital spending and a more purposeful approach I think as we march forward on real estate. And then, also, we maintain some level of capital in the event that we find a strategic acquisition opportunity that allows us to add scale. And because we see that scale is needed and we would benefit from that. So, really, all those things are on our minds as we're thinking about capital allocation.

Okay. No, I appreciate that insight there. I guess, for my follow-up question, I would just be curious, speaking of areas where you can invest in the business, if you could maybe provide us an update on your technology and efficiency initiatives related? I think, it's in Kansas City and in Indianapolis. When do you think we're going to be able to kind of get a greater insight into the impact that could have on the business and the potential to scale that over the next several years?

Yes. I mean, we're hopeful that we've got a few more quarters to go on the pilot, particularly in Kansas City before we're ready to talk more about the rollout plans that we have there. We are seeing some in Elkhart in Indianapolis, which is where the other two facilities are. We're meeting our targets in terms of those facilities and the pilot projects we have there. If you think about what we've done, the Elkhart facilities and end of line type facility, Indianapolis is also that, but it has a larger city operation. And then as you move to Kansas City, you've got a distribution center that we're testing at. So, it's really, when we say three facilities, they are three different facilities that we need to do this pilot work in. And so this process, it involves equipment, it also involves software and it involves training and development of our people, but we continue to be very excited about the whole process. And -- but know, the value that we could have if we handle the pilot well, we do the testing, we need to, and then we roll it out more broadly across the Company, so. Anyway, but I'm glad you asked about it. And again, we're continuing to see good things and progress, and we'll be able to talk more about that as we go forward.

Our next question comes from Ravi Shanker with Morgan Stanley. Please proceed.

Hey. Good morning, guys. This is Christyne on for Ravi Shanker. Thanks for taking my questions. Let me just take a step back here, just want to go back to some of the commentary on demand. Obviously, you’re confident in the outlook from here. But maybe you can just talk a little bit about what is giving you guys that confidence, how are customer conversations going? Maybe a little bit about of a kind of the inventory picture, how you see the demand side of things playing out for the rest of the year and maybe -- even into early next?

Yes. They're great thoughts. And we are having some amazing conversations with customers. One of the things that we did several years ago was to position ourselves as a logistics company, and there's no time like 2021 to have those kinds of conversations. It's amazing how customers have just different sorts of disruptions in their supply chains. And so, I think because of that and because of future planning, they're really willing to have a conversation that's more about a holistic solution that we could bring. And I can tell you this, because of the modes that we bring to that conversation and our integrated approach to them, and then being able to, even in the short term, bail them out of a situation where we use the assets in our network or ground expedite-type equipment to help them, all of that brings us to a place where we can have great conversations with customers. Some of them are still struggling with inventory levels. And I think there's been some timing shifts in the way that they're thinking about things. But others I think are looking for a trusted partner to be able to plan with as they're seeing life beyond this sort of disruptive play. And so -- but our approach, as I've mentioned, as a logistics company, brings about a conversation that's more multi-mode and it's longer term. A lot of times, it involves assets, but it doesn't always have to. And I'm increasingly pleased with our approach, beginning with a discussion with one of our Asset-Light solutions that goes from there, where years ago, maybe we were talking about our assets first. And I think our customer management team has done a great job elevating the conversation to a place that's more beneficial for the customer and also for us.

Got it. That's very helpful to think about. Maybe if I could squeeze in one more. I just want to circle back to the capacity conversation, maybe particularly around the labor side of things. I think kind of availability on that front has been a big theme this quarter. So, maybe you guys can touch on what you guys are experiencing. I imagine that the union agreement right now is actually quite helpful. Maybe you can touch on if you expect to do anything sort of around the edges with hiring bonuses, you mentioned kind of recruiting, picking up the recruiting type of things. So, I think that would be helpful as well.

Yes. We are challenged by that as I think every one that's in our industry is, but we are making progress. We've hired net of around 500 people in our Asset-Based business, and we've got close to 2,000 that are in the process. So, things are going well. One of the things I always like to mention when we talk about this is our arrangement that we have to bring on soldiers that are retiring from the military. It's a partnership that we have with the Teamsters and the military. And we've hired almost 600 people through that program over the years and it has been great for us. And I hope that every soldier that we've hired would say that it was great for them because we put a lot into that. But, we really appreciate our partnership there. And yet, as I say that, we still have a lot to do. We still have many folks that we would like to hire. Now, some of that is going to replace an elevated level of purchased transportation that we have. We're at high levels of utilization of rail and other purchase transportation. And that's not necessarily all bad from a cost per mile standpoint. But, we know, from an overall customer experience standpoint that we like to move shipments through the network, using our own resources for the most part. And so, it's great to have those partners and that variable resource. But, as we hire people, you may see probably later in 2021 and into '22, before we see a reduction in those purchase transportation levels. But, that's something that we devote a lot of time and energy to. We're hiring more resources in terms of recruiting to help us address it. And I think, our digital marketing strategies are working pretty well as well, so. But anyway, I hope that answers your question, Christyne.

Yes, definitely. I appreciate the time and insight, as always. Thanks, sir.

Thank you.

Our next question comes from Chris Wetherbee with Citi. Please proceed.

Good morning, guys. James on for Chris. I just wanted to touch on the tonnage trends a bit more and what you were seeing in your core LTL business. [Technical Difficulty] the trend basically seems a bit negative on -- in terms of comps, but just wanted to get an indication of what you're seeing or expecting in August, and maybe through the rest of the year?

Yes. This is David. And I'll just talk a little bit about what we're seeing. And part of that plays into what happened last year when you think about the tremendous growth that we had in some of these larger shipments, particularly, we talked about this U-Pack element that we have in our business. It's kind of unique to the industry, I think. And so, those shipments are substantially larger than our typical LTL-type shipment. And so, when we took -- had an increased demand for that beginning really in the mid-third quarter last year, and on into -- just really became some historical levels for us with that business. So, as we move forward from here, we're going to be comping against that heavier weight per shipment that we had last year. And so, when you think about our July weight per shipment compared to June is trending down on that total basis, like I said, but that's in kind of the mid-single-digit range, and that's due to those large accounts. But, we're seeing -- and we're managing that down because we're having increased demand for our core LTL accounts. And so, the weight per shipment on that core or published LTL business is essentially flat kind of in July versus June. Historically, we see a slight decrease, I guess, from June to July in that. But at the same time, we're having strength in revenue and revenue per shipment on that core business. So, that's what's happening is we're having our core customers come back. We're adding customers. We're retaining customers at a higher rate than we have in the past. A lot to the measures that Judy mentioned around how we're -- have visibility for the customer, how we have other solutions for the customers. And as we have solutions for customers, we're retaining them at a greater rate. So, all of that is contributing to this growth that we're seeing in our core LTL business as we move forward. So hopefully, that helps you understand kind of the dynamics going on there.

It does. And just -- so just to follow up on that a little bit. The revenue per hundredweight of being down 2% sequentially, just given the size of the businesses relatively, should that be like a continuing trend or was there basically a large step down in the 1st July, and then it sort of basically the step-down base is done? And maybe we can exceed that as sort of the level that is the run rate. Is that the right way to think about it, or is this due basically the comps get harder and it could be more difficult?

Well, I would say this comparison to the larger shipment activity, it gets tougher, if you will, as we go forward because we had this -- essentially, this U-Pack business went away in the second quarter of 2020, but then came back beginning in the third quarter and had some volatility in it. So, yes, that comp gets tougher as we move forward.

Our next question comes from Jordan Alliger with Goldman Sachs. Please proceed.

Just a quick follow-up on purchased transport. I'm just sort of curious, in the environment we're in with the supply chain, I mean, how hard has it been to ensure sort of the third-party capacity that you need? And then, I know as you're hiring more people, that should lessen. Do you have any sense when we might see an inflection around purchase transport sort of going the other way? Thanks.

Thank you. Well, we have not experienced difficulty in accessing that resource. The only thing I'd say about it, though, is that what goes with it and is sometimes whatever service issues they might be having as well. So, you have to accept some of that whenever you use a third-party resource and we do. And what I would suggest to you is because of where we are with hiring, and I know the demand needs that we have in the business, I would suspect that for the year of 2021, we're going to have this elevated level. And so, hopefully, towards the end of the year, we were able to pare that back some. But, I don't want to mislead you into thinking that it's going to be significantly better at some point this year. So, I really anticipate that it's going to continue.

Our next question comes from Bruce Chan with Stifel. Please proceed.

This is Matt on for Bruce this morning. I just want to echo the congrats on a great result in LTL. And maybe on that note, can you just remind us how the profit sharing scale works at ABF, and perhaps what the big OR threshold might be? And as a follow-up, we've heard a lot about hiring and retention challenges in the market. Do you think the profit sharing measures specifically have been making it easier for you to recruit in this market? Thanks a lot.

I would say that really our Asset-Based business provides one of the most generous comp and benefits packages in the industry. And so, I think that that should help us in the recruiting effort, as you point out. It certainly helps us in our turnover rates on our drivers. I mean, we have some of the lowest in the industry. So, it is also I think encouraging that these programs which include a favorable health and welfare program and pension benefit will begin to have some positive recognition by investment firms for being employee-focused and the sustainability of the workforce. So, these costs have been higher than the industry. I think we acknowledge that, but they’re embedded in our results and should have less inflation than maybe others are experiencing at this time. But, as you point out, we have a union incentive in the current contract. We've included some additional information in our earnings release about how that works, and the incentive levels at certain OR levels. And obviously, the year has to be finalized only halfway through it. But I think one way to think about it is to look at the year-to-date OR and how that's tracking, the asset -- this is on a GAAP basis, the way this metric works. And so, the Asset-Based GAAP OR through the second quarter was a 92.2% versus a 96.5% year-to-date in 2020. So, below at 93%, we pay a 3%. And so, again, that's calculated on a GAAP basis. And so, each percent is about a $5 million to $6 million incentive amount for the union. So, I just -- we're accruing for that as we go and just as kind of a percentage of the Asset-Based profit to the year. And so, I would encourage models that are trying to model our expenses would look to that matrix and kind of how we're performing as you model it out. So, does that help, Matt?

Absolutely, it does. Thanks for the color.

Sure.

Our next question comes from Stephanie Moore with Truist. Please proceed.

One of the questions I had, and Judy, you brought this up in one of your responses already, but -- and you kind of just discussed the benefits of offering the full suite of really logistics services and how that differentiates you amongst your peers. But, do you have any KPIs or metrics we could hear in terms of whether it's about customer retention or customers that now use X number of services versus X before, especially just given how volatile the last year has been? I'm sure many customers have really understood the value proposition, but any updated metrics would be really helpful. Thank you.

Yes. That's great thinking. And, when we look at what we're experiencing from a retention standpoint, I mean, it's really pretty amazing. When we sell -- when we have an account that is cross-sold, typically, our revenue shipment levels and profitability levels are in the range of 7 to 9 times higher. So, there's a great benefit to I think both the customer and to us for doing that. When we look at our accounts -- this will highlight for you the opportunity that we have ahead of us. About 35% or 36% or so of our accounts -- active accounts have been cross-sold. And about, I want to say, 16% or 17% of our revenue is from what we call a secondary source. In other words, we -- maybe the customer entered as an LTL customer and that secondary source is coming from a second like say, truckload. Now, we're increasingly seeing customers come in on the truckload side and then wanting LTL resource as the secondary. So, that's kind of interesting, too. But, when we look -- we were looking year-over-year and quarter-to-quarter about the revenue that's coming from that cross-sold experience that a customer has, we're very bullish on that and very excited about it. And as we've been talking about, it really does increase our retention levels. Another thing that's kind of been interesting is to see when a customer enters as an Asset-Light customer. In other words, they come in, say, doing truckload business or expedite or one of our Asset-Light-type services, a majority of those end up utilizing our LTL network as well. And part of that is because of the coordination that we can provide them. In other words, we can have full loads going to one of our locations and injecting that freight into the network and being delivered. So, that's pretty exciting. And again, I think, customers just want options and they want to have those be assured options. And I think the way that we built the Company really lends itself to that.

Our next question comes from Scott Group with Wolfe Research. Please proceed.

I was wondering do you think that the pricing trends should continue to accelerate into the back half of the year. Do you see potential for a second GRI this year?

That's a good question. Really, what we're experiencing is, I think, historic in terms of some of the price levels. And I'll remind you that we've been on this path of really trying to address some of our accounts since 2017. And so, we built to displace, which is I think I'm very thankful for that because of the environment that we're in. But most of the time that we're spending, Scott, is on really looking at the opportunities that we have, kind of evaluating what will work best for the customer and for us. We have more visibility than ever on where freight is needed and what works well for us. And that enters into this whole conversation as well. But, it feels like a strong environment. I think, certainly, we've always been in that place. And I anticipate with the demand levels and the conversations that we're having today for it to continue in that strong area for a while.

Okay. Can you just talk about the expedited trends in July? And how those trended relative to normal seasonality versus June?

I'm going to let David Cobb answer that.

Sure. It's -- this environment is conducive for our expedite business, and we're thankful that we're able to provide that service. And that just goes with all of our service offerings and enhances, I guess, the full logistics opportunities that we have. But, we saw strength in expedite, as we've mentioned in the release and we've had that as well in the first quarter. And so, we were continuing to see that in July as well. We talk about this large July revenue growth. Part of that is from the expedite business. It's going to be interesting as -- I guess, as auto demand, how that moves and how manufacturing plants and auto plants kind of operate through the rest of the year. And I think there's some needs there or some demand for product that hasn't been met yet. So, that could be an encouraging thing as we move forward as well, so. Does that help, Scott?

It does, yes. And if I can just ask one last thing. When you talk about the upgrading the network, is there a way to put a rough number around, like the door count increase or terminal count increase? And maybe just talk about when was the last time you did something like this? Thank you.

Well, we've always addressed our facilities based on the demand levels that we've seen. What we've typically done is added doors whenever we have a consistent level of business that leads us to that being the right decision. But, one of the things that I think this environment and what we are hearing from customers helps us with is just greater confidence in that business level or that demand continuing into future years. And I think David gave you the information on the dollars that he anticipates. But David, do you want to add anything to that?

Well, just that -- the capacity that could be added there is going to depend on a lot of factors, including site selection and timing of those projects. But I would think of it or a target that we have currently really is to add around 5% to 10% increase in door counts over around the next 18 months or so. So, we think there's also opportunity to improve productivity through existing doors, as we move forward as well. So, does that help?

Very helpful. Thank you, guys. I appreciate the time.

Thanks, Scott. We've got a couple more we want to try to get in. So, go ahead, Frank.

Our next question comes from Todd Fowler with KeyBanc Capital Markets. Please proceed.

Hey. Thanks. Good morning, everyone. This is Zach on for Todd. I just want to go back to the U-Pack and the spot. I just want to go back to the percentage of mix for U-Pack and spot. I guess just what is that percentage kind of on a normalized basis? And I guess, do you guys see that moving towards a normalized level, and then maybe moving past this core continue to pick up? Just like to hear your thoughts there. Thanks.

On a shipment basis, it's including our non-residential -- excuse me, not non-residential, non-U-Pack residential is what I mean to say, is 11% to 12%. Yes.

That's current. But, I guess, more normalized, what would that number be?

That's the normalized number.

Okay. Got it. And then just, I guess, higher level on the Asset-Light piece. I guess, in the past, you guys have seen about 5% operating margin. Longer term, I guess, what are the big levers you guys can pull to maybe move towards that number in 2021 and then maybe 2022?

Well, as you look at the numbers, we’ve made some progress and we certainly want to make more. In that business, when you’re growing it, there are some fixed costs and then there are some costs that you have to hire ahead in order to get the benefit of. And so, we’ve hired a lot of people this year. And so, one of the things that we look for is over a period of time, probably at least six months to a year, maybe a little bit longer, those folks would reach a level of efficiency. And so, that will be helpful to us. As we add scale to that business, it helps us with fixed costs. Adding dollars to the net revenue line, is useful to us because it will help us with achieving bottom line improvement because again of the fixed cost nature. We have a larger fixed cost amount in that business than you might expect because of the investments that we've made in technology to advance our digital capabilities. And so, -- but I think, the main thing is scale and dollars to the net revenue line. And that would be true in every business line that we have in Asset-Light.

All right. I think, we've got one more. So, if we can get to them, we'll try to wrap this up.

Our next question comes from Jeff Kauffman with Vertical Research Partners. Please proceed.

Thank you very much. And thank you for squeezing me in. Congratulations to everybody. This is a terrific quarter, just all around, not just LTL. So, it's great to see.

Thank you.

Thank you. Bigger picture question here, every time we have a recession, it's almost like a hurricane comes in and the water -- flood waters come in and we adapt and then the waters recede and the shoreline always looks a little different. And I think you're kind of signaling that with this terminal capacity upgrade and some of the other things going on. But, we've heard from UPS how people are coming back, so a little less online, a little more in the stores. I think Amazon kind of hinted at that. As the floodwaters recede here and you're looking at what your business is starting to look like on a more normalized basis, what are some of the bigger changes that you're noticing, or is it too early to tell whether some industry groups are coming back, some industry groups are changing their entire distribution chain, and they're asking you to come in and serve a different purpose? I'm just kind of curious what you see different as the floodwaters are receding, and we're getting a clearer picture of kind of the post-COVID world?

Yes. That's a great question, Jeff, and one that I think we think about a lot are we're experiencing some conversations that give us insight into that. And some of this may be our strategic positioning in these conversations. But, what we're seeing -- well, let me say this, first of all, let's level set. Our business is tied in to the industrial economy and retail. We have a good mixture of large, medium and small companies that we do business with. And what's been interesting is in the second quarter, you look at it, we saw strength in every one of those sectors. And I'm talking about the manufacturing, wholesale, retail, I mean, even construction, we saw some strength there. And so, that's a good backdrop. But, I think what is different is -- again, this is for us, is we've been in a lot of conversations with customers about their supply chain management. I mean, they're very much willing to relook at things, reevaluate. And it's useful to them that we're a company that has multiple ways that we can approach a solution for them. In fact, we're in the conversation because of that, and those advance. And the other thing I think that's different is just the advancements in visibility. When we look at our Asset-Based network or even our carrier partners, we know more about what they -- what works well in the asset network but also what works well for the carrier partners. In other words, we've -- they'll tell us what type of freight they want, which lanes they want it in. And so, the more that we can have that top level conversation and understand the challenges of that supply chain, then we can really offer some good solutions and options for a customer. And there have been many years in the past where a customer was really just desiring one mode. They wanted to do an RFP, they wanted to do a bid, they wanted one mode. That was it. You weren't having more conversations. So, this changing environment is changing environment is really what's different to me and the conversations that our customers are willing to invest in.

Thank you very much. That’s my one.

Thank you.

All right. Thanks a lot, Jeff. Listen, we thank everybody for joining us this morning. We appreciate your interest in ArcBest. And this concludes our conference call. Thanks a lot.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.