Greetings, and welcome to the ArcBest Fourth Quarter 2022 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 Friday, February 03, 2023. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead.

Thank you for joining us. On today's call, we will provide an update on our business, walk you through the details of our recent fourth quarter and full-year 2022 results, and then answer some questions. Joining me today are Judy McReynolds, Chairman, President and CEO of ArcBest; David Cobb, Chief Financial Officer of ArcBest; Danny Loe, ArcBest President of Asset-light Logistics, and Chief Yield Officer; as well as Dennis Anderson, ArcBest Chief Customer Officer. To help you understand ArcBest and its results, some forward-looking statements could be made during this call. Forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect ArcBest's future results, please refer to the forward-looking statements section of our earnings press release, and our most recent SEC public filings. To provide meaningful comparisons, certain information discussed in this call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. Reconciliations of the GAAP financial measures to the related non-GAAP measures discussed in this call are also provided in the additional information section of the presentation slides. As a reminder, there is a conference call slide deck that can be found on the ArcBest Web site arcb.com, in Exhibit 99.3 of the 8-K that was filed earlier this morning, or you can follow along on the webcast. We will now begin with Judy.

Good morning, thank you all for joining us. I would like to begin by acknowledging a few tremendous milestones for ArcBest. First, we exceeded $5 billion in annual revenue for the first time in company history, with year-over-year revenue growth of $1.3 billion. We also achieved the highest earnings per share in our company's history. These important accomplishments could not have happened without the hard work and dedication of the entire ArcBest team. The other important milestone I want to highlight is a celebration, 2023 marks our hundredth anniversary. ArcBest has flourished over the past century, and we are positioned to continue driving this momentum forward into the next century. The road to 100 years has been paved with resilience, flexibility, innovative thinking, cutting edge solutions, and a commitment to our core values. We know who we are, and because we have stayed true to our values and focused on our strengths, we've been able to innovate and successfully navigate enormous amounts of change. Nothing intimidates us. We have a saying, "We'll find a way," which means we'll stop at nothing to get the job done well. I'm incredibly proud of what we've accomplished together. Our results remain strong, as does our growth opportunity, regardless of the obstacles facing our industry. We are on track to achieve our long-term financial target of $7 billion to $8 billion in revenue by 2025, and will continue to manage the business in the short-term as market conditions evolve. As we've shown time and again, we are a company that thinks ahead and plans for the long-term. We continue to strengthen our competitive edge through our diverse portfolio. The breadth of modes we offer our customers allows us to make the most personalized and strategic decisions for them; decisions that will help them grow.…

Thank you, Judy, and good morning, everyone. I'll begin by highlighting our consolidated results. Fourth quarter 2022 consolidated revenues were $1.2 billion, a 5% increase over last year. On a non-GAAP basis, consolidated operating income decreased 19% to $83 million. And our adjusted fourth quarter earnings per diluted share was $2.45. For all of 2022, our consolidated revenues were $5.3 billion, a 34% increase over 2021. Non-GAAP consolidated operating income was $473 million, a year-over-year increase of 49%. 2022 adjusted earnings were $13.66 per diluted share, an increase of 60% over 2021. The 2022 effective tax rate that was used to calculate the fourth quarter non-GAAP EPS was 26.3%. And under current tax laws, we expect our 2023 non-GAAP tax rate to range from 26% to 27%. Of course, this may be impacted by discreet items throughout the year. We're pleased that our business momentum this year produced solid cash flow, with our 2022 EBITDA totaling $572 million. ArcBest's cash balance and total liquidity are also at strong levels. And as of the end of 2022, we had net cash of $61 million, an improvement of $13 million since the end of the third quarter. Total liquidity of $566 million remains at a very healthy level. And despite rising rates, the composite interest rate on the company's outstanding debt at year-end was just under 3%. ArcBest's strong balance sheet and the operating cash flow generated in 2022 allowed us to invest in a business through new equipment purchases, real estate additions and improvements, and technological innovations, all of which will strengthen our competitive edge and ability to serve customers. We regularly review external growth opportunities and are pleased to have returned capital to shareholders, with enhanced share repurchases in the quarterly cash dividend, which the Board increased by 50%, in…

Thanks, David. Good morning, everyone. I'll provide an update on the asset-light side of the business and give a high level over view on yield. We continue to see benefits from an improved truckload offering as well as benefits from the MoLo acquisition. The timing of that acquisition has been particularly favorable as it brought us more contractual business and better procurement in the spot market. While truckload spot rates declined sharply in the fourth quarter, we still grew shipments, which is a testament to the strength of our truckload solution. We continue to focus on profitable shipment growth in pursuit of our long-term financial targets despite market pressures that impacted us in the fourth quarter. Shorter term, we are also focused on what we can control. And part of that is managing cost. We continue to invest in our existing team with a focus on employee productivity. Additionally, we have better capacity capabilities, and are continuing to benefit from MoLo's career management approach. On the asset-based side, pricing has also remained rational. And our focus continues to be on profitable growth and effective cost control. We estimated our general rate increase in early November. And we will price appropriately to reflect our high quality service offering. As we entered our 100th year, we continue and evolve to better serve our customers which positions us well in any market environment. We have diversified our solutions and worked diligently to integrate them so customers have seamless access to our services. We are streamlining our business from the initial interactions with our customers to the day-to-day execution and are seeing the benefits of this strategic work. We have built additional revenue streams through solutions like dynamic pricing and U-Pack, which supplement our published LTL business and allow us to flex based on…

Thank you, Danny, and good morning, everyone. Our focus remains on creating value for our customers, and we have taken important steps to help us advance this goal, including strengthening our organizational alignment and collaboration, and making strategic investments in technology. We have tightened coordination across our sales, marketing, operations and service teams, which enables us to be more productive and efficient while providing a more seamless experience for customers. You hear us talk a lot about our customers. And we're celebrating our 100th anniversary this year because they continue to trust us to solve their logistics challenges. When they win, we win. And we strive to make decisions with a customer focused mindset. Of course, that means having a superior service offering that they value, but it also means serving them efficiently. Technology is a big part of making that happen. And over the last few years, we have been diligently working to build systems to give our customers a best-in-class experience. We view this as an investment that strengthens every point on the customer journey. Providing a best-in-class experience throughout that journey starts by giving our employees the tools they need. So we work with a disciplined approach to improve system and process efficiency. An example of this is our city route optimization project, which has already been rolled out to about a third of our service centers, which handled nearly half of the freight in the ABF network. This deploys advanced analytics to dramatically reduce the amount of time it takes our people to plan pickup and delivery routes so that they can focus more on managing the operation in real time. Locations using this technology were 80% more effective at reducing cartage in the fourth quarter. This is just one example of how we are relentlessly…

Thank you, Dennis. Before we conclude, I first want to take a moment and thank David Cobb for his contributions to ArcBest. David recently announced that he will be retiring later this year, and we are actively working to identify his successor. When David joined the organization 17 years ago, we had $1.9 billion in revenue, and 97% of our revenues came from the Asset-Based side of our business. David has worked alongside me and other leaders every step of the way to help transform ArcBest into the integrated logistics company it is today. He has led with integrity and skill, helping us navigate many changes. And on top of it all, working with David has been a pleasure. We will miss working with David when he leaves, in October, but wish him the best in his retirement. As we close, I want to reflect one last time on our strategy and position. Supply chains have never been more critical or complex. We regularly revisit our strategic to make sure it's sound and that we're executing well against it. When customer needed capacity, we were positioned to serve them and grow with our own assets and a network of currently over 95,000 carrier partners. And now, with customers looking for efficiency, we are well-positioned to deliver. We have an incredibly talented group of employees who are experts in our field, including a nearly 500-person in-house technology team building and implementing systems to make us and our customers' businesses more efficient. Our breadth of solutions and our innovative mindset allow us to build flexible, resilient supply chains. While there are some macroeconomic headwinds, ArcBest has demonstrated resilience throughout its history. We are ready for what's ahead both this year and beyond. I'm going to close by thanking our current and past employees, our customers, partners, and shareholders for helping us reach our 100th anniversary. Thank you for the opportunity to serve you. We are proud of what we've accomplished, but we are just getting started. We're committed to keeping the global supply chain moving, delivering on our goals, and driving growth as we look forward to our next 100 years. That concludes our prepared remarks. David Humphrey, we can now open the call up to questions.

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

Thank you. [Operator Instructions] Our first question comes from Chris Wetherbee with Citigroup. Please proceed.

Hey, thanks. Good morning, everybody.

Good morning, Chris.

I guess I wanted to start on demand trends and what you guys are seeing in the Asset-Based business. So, if we look at the monthly tonnage, looks like it decelerated a bit over the course of the quarter. But then the January number, I think, was plus 1. So, maybe it looks like a little bit of a reversal of that. So, don't necessarily want to get too hung up on any one given month, but wanted to get a sense of what you're feeling in terms of rounding the corner on 2022 and coming into 2023, in terms of customer demand in LTL?

Hey, Chris, this is Dennis. First of all, we did see a deceleration as the quarter progressed. Certainly in a weakening environment, retail led that. But, of course, we have seen some softening, as the quarter progressed, in manufacturing as well. Really, as we progressed into January, where the trends are similar, I mean when you look at the year-over-year number. But the demand environment feels very similar to where it ended the fourth quarter, and certainly I'll let Danny comment if he has any other things to add.

No, I think that's -- what Dennis said is consistent. It's broad-based. Dennis said retail is leading it, but I think we felt leanness across. Maybe a great representation of what we see is really with our managed customers. We have a very high retention rate, really can't remember the last time we've lost a customer necessarily in that. But that we've seen a deceleration in top line revenue for that, which is meaning our customers aren't shipping as much inside that business because we see the whole supply chain. So, I think that's representative really of what we saw across all of our business through the fourth quarter, and into January, at this point.

Yes, that trend is consistent across Asset-Based and Asset-Light. Customer retention is still terrific, but the customers, in general, are shipping less across the board.

Okay, yes, that's helpful color. And just a follow-up on pricing, so I noticed in the 8-K you mentioned that the increases ex fuel, in January, are coming in on the LTL side in the double digits, kind of getting a sense just what your feel is about the sustainability of that level of pricing power? And I know comps clearly have something to do with that as well as the year progresses. But wanted to get a sense of how you're sizing up the sustainability of really good pricing power in the LTL business as we move through some of this softer tonnage environment over the next several months or maybe several quarters?

Sure. This is Danny again. The pricing [indiscernible] is still rational. We really haven't seen weaknesses across that piece of it. It's obviously not the same as last year, but if you look at our increases in the fourth quarter on deferred contracts, like you mentioned what we're seeing in January with the revenue per hundredweight. We're comfortable that we can continue to price and price above inflation as we go forward. Our trends -- our actual business that we talk about gives us strength to -- helps us have more confidence in the core business and what we can do with the price levels there. But right now, we, again I would say that it's consistent with what we've seen through the fourth into the first quarter so far.

Okay, thanks very much for the time this morning. Appreciate it.

Thanks, Chris.

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

Thanks for everyone. Congrats, David, and congrats to everyone, wish best with the 100th anniversary. I think this is the perfect catalyst to host another Analyst Day and give us some limited edition swag, but that's just me.

We have some good swag.

Then yes, and that will be a good catalyst. So, just to follow-up on the previous question, how do you think about that algorithm between tonnage growth and pricing? Kind of at what point -- like is there such a thing as too much price that you dial down to get some more volumes to drive up the operating leverage or just a little bit of some background with that process would be helpful.

Sure. Ravi, this is Danny again. I'll start, and maybe Dennis may have some more. We are seeking the right balance, but I think the key to that is we have more visibility than we've ever had. We're able to make decisions. My yield team meets with the operations team with ABF really every week, but really conversations going on every day. And we're able to make decisions about what we want into our network. And again, having the ability to have the core business, that committed long-term business and then fill in where we're having capacity with transactional is really unique and gives us an advantage in how we approach the market place. And so, one of the biggest things that we're able to do, we mentioned not -- that we haven't had a need to furlough or lay off employees. That puts us in great position for our long-term targets. If the market turns with that, we can move from transactional to core business as our customers' demand comes back, and they approach us. And that business is at a higher revenue per hundredweight than the transactional business. But the transactional business is profitable and puts us in a great position right now. So, that's really how we're thinking about it. We kind of adjust as the market goes. And so, the flexibility is the key there, that as the market dynamics change we're able to bend and flex to the right answer for our company.

Hey, Ravi, this is Dennis. Just adding there, when you look at what our pipeline looks like for LTL business, that's strengthened. And we have more opportunity really than we've seen in a long time to grow that demand base. And we think about where we're positioned as an integrated logistics company, we're seeing more opportunities and able to manage, as Danny talked about, what business we really can take and want in that Asset-Based business. And so, we have the capability with that integrated logistics approach to be able to really optimize that answer for us.

Got it, that makes sense. And maybe as a follow-up, can you just parse some of the differences in the outlook you are seeing out there between your retail customers and your industrial end customers. I think there's some expectation that retail customers might see normalization fairly soon, but industrials might take longer. A, can you remind us of your mix of the two of them, and also what the outlook difference might be between them?

Yes, certainly. The manufacturing is still the leading part of our customer base, and it's about a little over a third of our customer base. And then retail follows behind that. But in the retail industry, we're seeing some normalization of inventory levels. Certainly what we're hearing from most of our customers is that they're back either at or near pre-pandemic levels, but that does vary within the -- that does vary within the retail space, certainly by the type of retailer. And so, we see some different -- different trends within that. But on the manufacturing side of things, I mean certainly, as I mentioned, that that's lagged a little bit, the retail weakness. And so, we saw retail weakness probably a little bit before we saw the manufacturing weakness that showed up early, as the fourth quarter progressed. So, that's really what we're seeing there.

Sounds good. Thank you, everyone.

Thank you.

Our next question comes from Jason Seidl with Cowen. Please proceed.

Thank you, operator. Hey, Judy. Hey, team, good morning. David, congratulations.

Thank you, Jason.

Thank you very much, Jason.

Oh, you're so welcome, David. Well deserved, sir. Want to go to pricing a little bit here. We're still seeing, I think, what you would call a good and rational marketplace. But you did see some sequential drop in terms of your contract renewals. I think, in your slides, it said 480 BPS. Are we getting it close to the point where we're starting to worry about being able to price above your cost inflation, which everyone's seeing a lot of cost going up right now? And number two, are we fearing that you could see a drop-off in volumes if the economy slows, that could be a detriment to the pricing market as you move throughout the year?

Yes. Jason, this is Danny. So, two things; one, just the levels we've talked about, 5.4% in the fourth quarter, if we go back, it's still probably a top 25th percentile for us, so -- on increases. It's still a rational market. And as far as continuing ahead, yes, we feel confident we can price to cover inflation and also capture value in our service offering as we go forward. I think the other piece is to look back at over the two-year stack of the pricing improvements that we've had. It puts our core business at a really great level. And that takes pressure off of trying to get larger increases if you're just trying to cover the inflationary pieces of it that you go forward. I think your other question with regard to does declining demand put pressure, is kind of what I mentioned before. I think we feel confident right now that we have a transactional lever that can keep us -- keep our employees active and keep profitable shipments into our business that takes some pressure off of the price on the core business. And again, we will keep it going, and we will keep focusing on and pricing above inflation. And we also have the network and the employees, so that as demand returns that we're positioned for it. The other piece is we're a logistics company. So, as customers come back to us from, on a pricing standpoint, if cost is the immediate thing they want to, we're going to have a supply chain discussion with them and talk about our managed operations and what they're trying to accomplish with their business. And so, if it really is to a point that we can't handle that in ABF at the price level they want, we're going to move the business into our managed operation, we'll service the customer, and we'll make margin off of it using our logistics partners. And so, we're just well-positioned no matter which way the customer turns.

Well, that's good color. Wanted to get my next question here on MoLo, I guess, Judy, where do you think it is relative to your prior expectations when you guys bought it? And then looking forward, the market is what the market is for brokerage. But are there any other - any levers on the cost side or any things you guys can do to sort of improve the productivity there?

Well, it has met our expectations in the initial year, and a little bit here. We were -- that the performance, last year, for all of Asset-Light, but in particular the truckload solution was good, and one of the critical areas -- or actually two things, one, just the knowledge of the capacity and buying, and the approach, the business model that was really used there, and it fully adopted into what we're doing today, and successful. And then the opening up of customer opportunities by having a greater truckload solution at scale has really helped us. And we are on track with the EBITDA targets as we closed out the year, and that's what we had predicted. And so, we feel good about that. But I do hear what you're saying about the current environment. It is certainly depressed, just an absent spot market. And we're navigating through that. We do have some cost reviews going on to better position us with costs that are appropriate. I think we've already talked a little bit about the technology areas of advancement, trying to enable our people to be more efficient. And all of that is going to help us as we move forward. But I want to say this; we're focused on those 2025 targets. We want to grow this. And we're going to position ourselves to be able to grow. And this environment that we're in right now is not going to last forever. And we feel like we're in a good position as we come out of it.

Thanks, Judy and team, appreciate the time, as always.

Thank you.

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

Hi. Yes, just on the cost side for the Asset-Based, so maybe can you talk to some of the lines that you may be able to lever as we -- in this demand slowdown, are you doing things on headcount, additional stuff on purchase transport, just trying to get a sense for the ability to maintain your OR over the course of the year, and, at least for the start of the year, what could be a softer demand situation? Thanks.

Yes, this is David. I'll start off here, and if others have something to add. But I mentioned a couple things in the opening comments just about our progression in the quarter, where we made some ground on outside resource utilization. And that comes with, as we mentioned, having that good employee base, and we're able to do more of that internally, which we like do. And so, we see opportunity there as we move forward, as we get our team more productive. We did a lot of hiring in 2022, and so we expect that team to improve in their productivity as we move forward. So, that's one area. I think the other area is the repairs and maintenance is one of those items that I called out, where we had some elevated costs. Some of that is due to the equipment replacement cycle and timing of that. But some of that is just the inflationary cost in the repairs and service side of it that we were seeing. But we could make some progress on that as we have a good CapEx plan in place, and as we bring on some of this -- some of that equipment didn't get delivered until late in the year, and into 2023. And so, this is our 2022 orders I'm talking about. So, that has opportunity there as well. But those are probably some of the, as we move forward, areas where we could see improvement.

And on the headcount front, I mean do you expect it to stay relatively static for now or what's your thoughts on that?

Well, I think that's obviously going to be dictated by our business levels to a certain extent. But we're -- look, I would say, just moving from December to -- we've been hiring through the year of 2022, but moving from December to January, roughly kind of flattish right now. And then we're certainly going to monitor that as business levels prove some.

Well, the other thing, David, is, naturally, we have retirements.

Right.

And that that's something that we're focused on, and making sure that we have people in the right places, but we -- we really have that opportunity as we go. And then our visibility into the network about the business volumes that we have at given locations has never been better. It's one of the reasons why some of the transactional business, Danny's talked about already, works well for us. And really provides an opportunity for us to better manage our costs, and we have a pilot of our city route optimization technology, and initial results of that improved productivity by a 1.5% and also, we had 67% reduction in cartage in those locations, and that's better than 25% reduction in some other locations. So, not only do we just have the pure matching of the headcount to the business levels, but we also have this type of work that's going on to optimize as well as the ability to attract, that transactional or quoted business to best serve our needs when we have those in the network.

Great, thanks so much.

Our next question comes from Jack Atkins with Stephens Incorporated. Please proceed.

Okay, great. Good morning. And David, I'll add my congratulations to the others. Thanks for all the help over here. So, I guess maybe kind of -- for you on this, David. I mean, as you sort of think about the business here in the first quarter, you guys have really highlighted all the efforts that you've undertaken to make the business more resilient through cycle and make it more dynamic in terms of its operations. I mean, as you sort of think about, as we hit in the first quarter, you highlighted in the 8-K, I think a average, sequential deterioration fourth quarter to first quarter about 400 basis points, it's greater than that during periods of economic uncertainty, should we think about you guys performing kind of better than you would historically, based on all the items you just flagged in terms of the business processes that you've implemented?

Yes, Jack. There's we give that point of reference as a historical sort of number. And that would be our intention to try to beat that, we certainly would try to, we think it's achievable to get our cost per shipment, kind of in a lower place. So, there's opportunity there. And in those areas, that Judy mentioned from technologies, and then as I mentioned, around, our stable workforce. Certainly, the macro though is going to dictate a bit of things, and so and have an influence. And so, we'll manage carefully through that. But just it's not about managing quarter-to-quarter, it's really about staying focused on these longer-term growth targets. And I'm excited about that for the business.

Okay. Okay. So, just sort of assure to watch how that unfolds this year. And then I guess, my follow-up question, as you sort of think about the second half of this year, you have the labor negotiations, I know you don't want to bring the bargaining table to the fourth quarter conference call, but is there anything you can kind of maybe help us kind of think through in terms of timing? There was another large union employer that reported last week, that doesn't feel like they're expecting a significant step-up in their expenses related to their new contract, they feel like they've sort of towards the market there and that their businesses has been sort of keeping up with inflation. Is there anything you can maybe help us think through because I know that's a point of concern for investors, just that there could be some labor inflation in the second half of the year? Thank you.

Well, as we always are, we're prepared for what's coming in terms of the contract negotiations, I feel like our team has prepared and planned, and we're in a good place, and our leaders are regularly in the field with our employees and hear directly from them, about what's on their minds. And so, we're in a good place, I feel like that we're very experienced, I've been through a number of these, and they're all different, but as long as you're prepared, and you have the good approach, and intentions and information, typically, we can work our way through this. And so, obviously between now and the expiration of the contract, there's a lot of work to do, and so we're going to stay focused on that.

Okay, would you expect it to be a win-win-win? I think is what UPS framed it up? Is that your expectation as well?

Well, I mean, I really rather not comment on that because it's still has yet to be worked through. But certainly you always want winning situation and winning outcome.

Okay, thank you.

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

Hey, guys, this is actually Erin on for Scott. I just wanted to follow-up a little bit on the January tonnage comments, the deceleration throughout fourth quarter. And then it's like year-over-year pickup. I'm just curious like how that is versus normal seasonality. I know that you said that the December versus January trends are pretty similar. But I'm just curious, like how that is, versus seasonality and what you're kind of expecting seasonally, we're trying to throughout the quarter?

Yes, there's I'll just back up a little bit. And just talking about fourth quarter, certainly some month-to-month changes. But when you think about sequentially fourth quarter compared to third quarter, it was one of the worst sort of periods in terms of tonnage in kind of our past 10 years, but sequentially versus December, January tonnage and shipments are up about 1%, when typically, that's a sequential trend. That's lower from December to January. So, this is -- it's hard to comment really about one particular month. But I would say it's trending above normal seasonality. I mean certainly the customer demand environment is similar, though.

Got it, okay. And then just quickly on fuel and how should we think about the net impact of fuel this year? I know that there's some tougher comps later in the year, I guess how do you guys think about that in the second half, could that be potential headwind by mid-year?

Yes, certainly fuel is a big part of the overall revenue, that we'll have and it'll impact the dollars per shipment. We're not sure where the price will go. But as you mentioned, I think the fuel prices in 2022 kind of peaked in the spring, and so yes there's from this level, there's it's lower now versus when it was in spring of last year of 2022. So, that'll be a little tougher comp, our fuel surcharge mechanism works really well in terms of for the customer, as well as for us. And so, just really, there's a lot of impacts of fuel in our business, in our cost. And so, that fuel surcharge mechanism serves to cover those costs.

Okay, got it. Again, thank you for the time.

Thank you.

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

Hey, great. Thanks and good morning. So, I guess I wanted to ask on the growth plans, I know in the CapEx, you've got I think it's like $55 million to $65 million earmarked for real estate, in this environment, I know you've talked about expansion going back over the past year or so, but as the environment changes, how much flexibility do you have on expanding out the network at this point, and maybe could you just talk about the cadence and your thoughts around expansion in the environments? Thanks.

Yes, I mean, Todd, that real estate plan for '23 is similar to what we did in 2022. And as we've talked about, we haven't invested in that area in a number of years, and it's great to have the cash flow and the great balance sheet that we have to position ourselves in a better way. And so, we're looking to be able to, to have the capacity to expand our shipment count by the mid-single-digits again, and by the end of 2023, with that, from just the capacity that we're adding from a real estate perspective. And so, like Judy said, we're positioning ourselves to grow. And with every recessionary freight recession, there is an eventual upturn. And so, we want to be positioned for that, and that's what our plans call for and we're taking a measured approach around our CapEx program and replacing equipment in our timely sort of total cost of ownership perspective on our equipment side. And so, as we said, this is a little heavier year because of some of the spillover from 2022 and some catch-up that we needed to do there. So, hopefully that helps.

Yes, no David it makes sense and certainly we appreciate the short-term versus the long-term, you're just kind of thinking about the startup costs in that piece of it. But that makes sense. Maybe just for a quick follow-up, Judy, I'll take the bait. I think you teased about it a couple of times with the handling technology that you have and maybe some more details later in the quarter. But what are you willing to share with us now, it sounds like maybe partnering with some customers and having them use that technology, is that something that would be a fee based service or they'd be paying you for that or what are you willing to share with us now with the teaser that you put out here today?

Well, I mean, I think it's the technology and equipment and process that we talked about before. And not only are we piloting that within the ABF network, but we have opportunities that have presented themselves with customers outside and within the work that they're doing. And so, we're excited about it. And obviously, if it's work that we're going to be doing for a customer, once we work through the pilot, we would eventually be paid for that. And so, sometimes when you're in a pilot scenario, you have to have some flexibility over the things that you do with them. But it's an exciting thing. It will be later in the quarter when we talk more about it. But it is connected to the, again, the technology equipment and process that we've referred to before. And so, look forward to sharing more.

All right, sounds good. Well, stay tuned. Thanks for the time this morning.

Thank you.

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

Hey, great. Good morning, Judy, David and team and David again, thanks for all the discussions over the years and congrats.

Yes, Ken.

Yes, you got it, Dave. If you could talk about the shift in pure pricing ex-fuel, I mean I've heard the discussion through the Q&A. But maybe I'm just a little confused here. It seems like you talked about low-single-digits in the fourth quarter. Now it's double-digits in January in the face of what's still tough pricing comps from early '22. Am I missing something there or you talking about different categories?

So, when we talk about double -- or double-digits that's really on that core business that we're talking about. That's the long-term committed price that we've offered to our customers kind of we may have call it published at some point in the past.

And it's year-over-year in January, that's what we're referring to. And then the other piece is just the contracts that renewed in the fourth quarter were at 5% year-over-year. And so, really, it is different. It's different categories, but it's just indications of the strength of the pricing environment is what we're trying to give you, just give you color in a couple of different areas on that.

But then on a revenue per hundredweight, it looks like, if you're low-single-digits and then you remove, I guess the contract, are you saying it is holding firm or is it decelerating as you're moving forward into January?

So the core business, like we said, we kind of get those numbers, I think when you look the overall piece, you get mix involved in that. And so, the transactional business that we are bringing on to fill some empty capacity could be at a lower revenue, but like I mentioned, it's profitable. But from a revenue per hundredweight standpoint, it could be that factors into the mix that you're getting to.

So, Ken let me try this. What we call our core customers, that's our regular customers that are shipping. And those are they have published rates. And so, that's what we're referencing there. What Danny just talked about was when in particularly when those business levels are weaker, and when the network needs to be filled in certain lanes, we are supplementing that with transactional business that comes at the market. And so, you can have some differences in the revenue per hundredweight comparisons, both because of that, and also because of the profile of the freight that's involved. But I think Danny made the comment earlier, we're seeing the pricing environment be strong and we're not seeing any real change to that.

That's a really helpful clarification because I think there was some concern on what is going on in the pricing market. And Judy, if I could follow-up on Jack's questions before I just want to understand the kind of run through on costs and your expectation now I guess for operating ratio, you made a structural move, it seemed like into the 80s, I think after kind of 20 plus years in the high 90s. How do you view this? Maybe David with kind of, as volumes decelerate, you talked about some of the costs and then the cost of leverage you've got, but with a sequential, normal historical sequential shift, do we see that bounce back up above that 90 level and I guess what your thoughts are as we go into '23?

Yes, just in reference, short-term, kind of a short-term comment here, and just talking about fourth quarter to first quarter. You think about that 400 basis points and if you added that to our fourth quarter, that would give you a first quarter, that's probably the second best first quarter in the past 20 years for ABF, despite it being a weak freight environment, and so I know that's a short term, like I said, we're building this business for even a longer-term perspective and to operate in those long-term targets, operating profit margin targets of 10% to 15% in a more consistent basis, and that's for an annual kind of OR or operating profit margin perspective. And we know that first quarter is typically our weakest quarter of any given year. So, I'd share that with you from a quarter perspective, we're not trying to manage this quarter-to-quarter again, we're trying to build for longer-term view.

It's helpful, I guess, I'm just trying to understand given that fourth quarter was such a maybe a flattish seasonal business, and I know you're not typically as retail exposed, but given it was flat, or if that first quarter then becomes even better than that seasonal shift becomes a little bit different than normal, sequential shifts between 4Q and 1Q.

Well, I mean, I think it's a -- I think all of this is really hard to read right now. I mean, I really do, but I think we're better positioned than we've ever been to see what the opportunities are, and where we need to business and help customers navigate through that. And then also benefit ourselves as a result. So, but it's an interesting environment to try to predict for sure.

Great, appreciate the insights and look forward to the progress on the negotiations. Thanks Judy.

Thank you.

Looks like we're going to go over just a few minutes, but I got a couple more that want to ask some questions. So, we'll go ahead and proceed.

Our next question comes from Ari Rosa with Credit Suisse. Please proceed.

Great. Good morning. And I'll just echo everyone else's comments in saying congrats to David, on the pending retirement. So, one of the things and we've kind of been talking about it throughout the call, but one of the things I think that was noteworthy was in the context of a challenging volume environment, we saw your shipment declines less than competitors. It sounds like, maybe the reason for that was you were using some of these transactional opportunities to fill empty capacity. I'm just curious, could you kind of confirm whether or not that's the case and then also, how easy is it to then clear out that business from the network when volume returns or when demand returns?

Hey, this is Danny, I'm glad that you got our point. Yes, we are using transactional business to fill the empty capacity we have in our network. And again, I want to reiterate this profitable business, as Judy pointed out is market price business. We are making a shipment-by-shipment commitment on those. And so, as the ability to move that out of our network and bring on additional of the core business is by day basically, as we see the demand from our customers, we can turn our dials and we will pull back on some of the transactional business to fulfill the needs of our demands of our shippers as it comes back in.

Got it. That's super helpful. And then just I wanted to ask one, I guess modeling question, perhaps. But you mentioned the profit sharing bonus that's going to be paid to employees. How does that get reflected in results, should we expect to step-up in compensation expense than in first quarter or how should we model for that?

We'll just say that we were glad to be able to pay for 2022, the highest earn out on that bonus OR incentive. And so, we think that's a good thing for our employees. And we're glad to be able to do that. Typically as we -- when we have those programs, we accrued for those throughout the year as we as earnings are made in a particular quarter relative to the full-year and so that's the way we do that, it's accrued throughout the year is the process.

Got it. Okay, very helpful. Thanks for the time.

Thank you, Ari.

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

Thank you very much. Well, congratulations. And, David, going to miss talking to you, so I guess I'll have to ask you a question before you go. Judy and Dave, a more strategic question, so we're at $5.3 billion in revenue, you expressed your confidence in achieving the long-term targets by 2025. I'm just going to assume 2023 may not push that all that much forward. So, when I think about '23 to '25, we got to grow revenue 35%-40% to hit the low-end of that range. Organically, I don't know if it gets it there. So, can you give us an idea of what types of potentially acquisitive growth would make sense the way you're building the franchise? And then the David part of the question is, with the CapEx bump, there's not as much free cash this year, but your balance sheet looks very strong. How high would you go leverage-wise for the right strategic opportunity?

Okay, well, we -- Jeff, as you've seen us do with the approach that we're using, is we'll look for opportunities that add scale to our already existing solutions that we're providing customers. We're constantly listening to customers to see what they need. We have opportunities to advance our tech platform and what we're doing on some of these customer pilots. And we also are always involved in the startup space, looking at disruptive sort of technologies that are going to be either something that could help us better execute and perform or better achieve results on the top line, and then also to benefit our customers. So, we have all those things. We're very active in looking at what comes on to the market, and excited about how that could make its way into the results for 2025. But I'll say this; we don't have to have an acquisition, as we see it, to achieve those -- those targets. But again, just like we did with MoLo, if you see a company that's out there that has an approach that's advantageous we're in a position where we can go after that. But we do see robust opportunities to invest organically which gets you to David's question.

Yes, and it's, as you --

Yes.

And I'll just say that, generally speaking, we would like to stay within an investment-grade credit and metrics. And so, that's going to -- we had a strong EBITDA, and we've got -- for the year. And if you were just to go one-times that EBITDA you could borrow up another $400 million or so just under our additional facilities that we have place. And so, with total liquidity of $566 million at the end of the year, we feel like we're in a good place, and have a good, solid CapEx plan for the year, and investing into our business there, and with good returns. And so, we're excited about where we are.

Well, that's my one-and-a-half question. So, thank you.

Thanks a lot, Jeff. Hey, Frank, I think we've got time for one more question.

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

Hey, good morning, everyone. Just want to follow up on some of the comments around having some of those broader supply chain conversations with your customers. And maybe understand a little bit more about how pricing works in the cross-selling process. You gave us a good rundown of all the benefits of cross-selling in the slide. So, I guess thinking about all of those, philosophically, is there any inclination to maybe incentivize cross-sold growth or growth in one part of the business versus another? Or is that just an entirely separate RFP and sales process?

Yes, thanks, Bruce. This is Dennis. I would say that we look at our customers holistically. And so, we think about what their supply chain needs are. We're not typically going in and prescribing a specific service for them until we understand their needs. And so, as we learn about their needs, and their needs shift, and so we get into these conversations about what's going on in their supply chain today, and what might be happening tomorrow, and understanding their pain points. And so, that that becomes -- then, once we identify the need, then we step into the process of understanding what solution needs to be built and how those need to be priced. And so, I'll turn it over to Danny in case he has any other --

Yes, just to follow up on what Dennis said. When we think about the supply chain you think about supply chain optimization. Really, the -- what we're seeing in that is, if we had the right conversations we could eliminate cost from the supply chain, which takes pressure off of price. And so, there's not a need at that point to kind of -- kind of, I think, you described. We were able to lower the overall by taking inefficiencies out of supply chain. And so, customers are excited, and that allows us to have the margin that we need on our business there.

Yes. To add to that, Danny, it's an order of magnitude different; having a rate conversation for cost reduction for a customer versus changing the way that their supply chain works, and so, if you're able to optimize how their -- the frequency and the distribution points that they're shipping product, that that is a significantly different cost savings conversation than a rate conversation.

Okay, no, that's helpful color. And I guess maybe just to clarify and put it simply, as your business is growing and as your service lines are growing, are you now managing or optimizing more towards an all-in kind of fully baked price for customers?

Bruce, I would say that kind of as Dennis described, we're having an overall conversation. There's still individual pricing components underneath the structure, but those vary depending on what the solution is to it. And so, yes, we think overall, holistically with the customer. But then it still drives down to individual components after that.

Got it, very clear. Thank you.

Thank you.

Okay. Well, I think that concludes our call. We appreciate everybody been with us this morning. We ask you to disconnect now. Thank you very much.

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.