ArcBest Corp (ARCB) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ArcBest Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, Friday, July 28, 2017.

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 2017 Earnings Conference Call. We will have a short discussion of the second quarter results, and then we'll open up for a question-and-answer period.

Our presentation this morning will be done by Ms. Judy R. McReynolds, Chairman, President and Chief Executive Officer of ArcBest; and Mr. David R. Cobb, Vice President, Chief Financial Officer of ArcBest. We thank you for joining us today.

In order to help you better understand ArcBest and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect the company's future results, please refer to the Forward-Looking Statements section of the company's earnings press release 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 Ms. McReynolds.

Thank you, David, and good morning, everyone. We were pleased to report improved second quarter results. Economic strength, shipment growth and improved pricing for less-than-truckload services underpin the quarter, leading to both revenue and profitability growth. Demand for expedited services was also notably strong. As a logistics company, our strategy to capture more of the total transportation and logistics market through a full supply chain solutions and a more simplified customer experience is indeed bearing fruit. By offering both Asset-Based and Asset-Light solutions, we either have or can secure the right kind of capacity depending on what our customers require at any given time. This matters to our customers and puts us in a position to win business that we previously could not access and to do so profitably.

While this strategy has been in place for some time, I feel confident that the investments we've made in technology and people and in solidifying strong relationships with our customers and providers are paying off. At the same time, we continue to monitor costs across the organization and reduce those whenever appropriate.

As far as the overall economy, we expected to see some improvement in the operating environment in the spring and summer, and that certainly has occurred. Activity in the manufacturing sector improved, and in our industry, from our perspective, the truckload market tightened as the quarter progressed. After much analysis of our changing freight profile, on June 30, we announced that we will apply space-based pricing for less-than-truckload shipments with cubic minimum charges. This is designed to ensure that we're appropriately compensated for cube-dominant shipments that have proliferated across our network.

Many of you have asked us if this is directly related to a growing e-commerce phenomenon, as we noted, that we have seen a large increase in residential deliveries this year. That is one factor we considered. But another significant trend is the overall growth and ongoing profile shift of bulk-year shipments across the entire supply chain. In addition, many shipping and logistics solutions now include unique requirements. So the need for this logical, complementary pricing to the standard rate base classification system is in fact quite broad.

As we noted in our press release, we currently capture dimensional data on more than 90% of the freight shipped in our Asset-Based network. By August 1, the effective date for this pricing initiative, static dimensioners will be installed at the majority of our asset-based distribution centers in order to obtain dimensions on the remaining shipments and to validate the dimensional data we currently have. We believe this dimensional pricing initiative will more adequately compensate ArcBest for the value we offer our customers when handling these types of shipments.

The effects of our January 1 reorganization also gained momentum. The cost savings associated with our enhanced market approach are in line with our original expectations. Our financial flexibility, one of the pillars we outlined to you in our Investor Day that makes us well positioned for growth, also remains solid. Earlier this month, we completed the amendment and extension of our credit agreement for another 5 years with our current lender group. The new agreement increases the amount of revolving credit facility to $200 million from $150 million and raises the revolver accordion to $100 million from $75 million. This is in addition to this year's amendment and extension of our receivable securitization through April 2020. We value the solid relationships we have with our lender group and appreciate their confidence in the ArcBest management team and in our ability to execute on behalf of shareholders.

And now I'll discuss more details about our service offerings. Second quarter revenue for ArcBest's Asset-Based LTL services improved versus last year, related to increases in shipment counts, better yields and higher average revenue per shipment. The increase in revenue per hundredweight resulted from an emphasis on pricing initiatives during the quarter, designed to improve account profitability across our Asset-Based network. This pricing metric benefited from a year-over-year increase in fuel surcharge and shipment profile changes, including reductions in average weight per shipment.

The recent pricing environment improved some from previous quarters. We have experienced good retention of our May 22 LTL general rate increase, and we continue to have success in securing out-of-cycle price increases on accounts not meeting our profitability thresholds. We are having success in adding new business at pricing levels that are satisfactory to us, and we have set higher margin thresholds for operationally inefficient segments.

During the second quarter, we continued to experience Asset-Based shipment growth that exceeded the rate of increase in freight tonnage. The significant growth in e-commerce and on U-Pack residential delivery shipments that begin late last year continued in the most recent quarter. This contributed to the year-over-year reduction in total weight per shipment that we experienced. The handling of these smaller shipments continues to impact dock and street delivery expense, and additional cartage costs were incurred in order to meet our service commitments.

As we work to improve shipment handling productivity in our Asset-Based network, we're also making progress on IT investments that will improve network efficiencies and reduce handling costs. These include replacement of handheld and tablet technology utilized by our touch labor employees as well as upgrades to our dock, street and line-haul optimization systems.

During the quarter, expenses related to our Asset-Based line-haul operation continued to trend lower as this area benefited from reductions in total line miles and empty miles and improvements in trailer load factor.

Reversing a trend we've seen in recent quarters, nonunion Asset-Based healthcare costs decreased during the second quarter versus the same period last year by over 10%. As I've discussed in the past, we have a strong corporate commitment to health programs, emphasizing education, healthy lifestyles, prevention, periodic screenings and regular physician visits. It is good to see the benefits of those initiatives begin to reveal themselves.

During the second quarter, ArcBest's Asset-Light business experienced revenue growth and significant improvement in operating income. This was primarily related to strong demand for expedite services and incremental business associated with our dedicated truckload services that ArcBest acquired last September. Net revenue margins in this business were down slightly compared to last year's second quarter, lower by only 40 basis points. We were pleased with the minimal decline in this profitability measure relative to what many of our peer companies have reported.

On a sequential basis, compared to first quarter, Asset-Light net revenue margins improved 50 basis points. The growth in our expedite business was a result of an increase in shipments combined with average -- greater average shipment revenue. Customer demand for expedite service was particularly high in the automotive and manufacturing market verticals.

Our dedicated business benefited from an improved operating environment and positive customer outlooks. Our dedicated truckload offering is an important element of the Asset-Light services we offer our customers. Slightly lower revenue for ArcBest's truckload services was driven by reduced shipment counts, offset by a double-digit increase in truckload revenue per shipment related to increases in revenue per mile and length of haul.

Improved truckload market conditions are positively contributing to increases in shipment revenue, and we continue to capitalize on opportunities for offering more of these services to our account base. Though not at the level of last year's second quarter when we experienced positive market conditions, the net revenue margin percent on ArcBest's international business increased sequentially for the third quarter in a row on flat revenue.

Versus last year, FleetNet's reduced second quarter revenue was driven by fewer total events associated with less roadside activity and changes in customer mix. Despite the decline in revenue, second quarter operating income improved as a result of higher net revenue per event and improved labor efficiencies.

And now I'll turn it over to David Cobb for a discussion of the earnings results.

Thank you, Judy, and good morning, everyone. Let me begin with some consolidated statistics on ArcBest.

Second quarter 2017 consolidated revenues were $720 million compared to $676 million in last year's second quarter, an increase of 6.5%. On a GAAP basis, we had second quarter 2017 net income of $0.60 per diluted share compared to net income of $0.39 per diluted share last year.

As detailed in the non-GAAP reconciliation table in this morning's earnings release, adjusted second quarter 2017 net income was $0.57 per share compared to $0.38 in the same period of 2016. The adjustments taken in second quarter 2017 included $300,000 pretax or $0.01 per share aftertax related to our enhanced market approach that was implemented beginning in January.

During the second half of 2017, we currently expect to incur approximately $1 million of additional restructuring costs related to our corporate reorganization.

Our non-GAAP net income also included an adjustment of $1.2 million or $0.04 per share related to a tax benefit we received for the vesting of share-based compensation. We are now required to recognize the tax changes on these restricted stock awards when they vest or when they are settled. For us, it typically occurs in the second quarter.

ArcBest's second quarter effective tax rate was 34.6%, which included the tax benefit associated with the share-based compensation. This morning's earnings release shows a tax rate reconciliation that results in second quarter and year-to-date non-GAAP tax rates of 40% to 41%, which is in the full year range we expect in 2017 under the current tax laws.

Judy previously mentioned the reduction in Asset-Based nonunion health care costs. On a corporate-wide basis, second quarter health care costs were below the same period last year by approximately $1.4 million as claim frequency was lower despite a slight increase in average cost per claim.

As a part of our stock repurchase program in the second quarter, we bought 195,000 shares for a total amount of $3.6 million. Under our existing repurchase program, we have approximately $34 million of purchase availability.

Earlier in the year, we provided an estimated range for our 2017 net capital expenditures of $145 million to $170 million. Based on what we've spent through the first half of the year and our expectations for the remainder of the year, we are narrowing that range to $150 million to $165 million.

So far this year, our net capital expenditures total $63 million, which includes $24 million of net cash expenditures and $39 million of financed equipment. We have been on the accelerated schedule of taking delivery of the new Asset-Based tractors we are purchasing this year. We expect to complete the delivery of those new tractors shortly and look forward to the positive contributions they will make in reducing average fleet age, improving fuel economy and lowering equipment maintenance costs.

We ended the second quarter with unrestricted cash and short-term investments of $157 million. Combined with available resources under our recently amended credit revolver, our amended receivable securitization agreement and their associated accordion features, our total liquidity currently equals $473 million.

Our total debt at the end of the second quarter of $257 million included the $70 million balance from our credit revolver, the $45 million borrowed on our receivables securitization and $142 million of notes payable and capital leases, primarily on the equipment for our Asset-Based operation. The composite interest rate on all of our debt is 2.5%. And full details of our GAAP cash flow are included in our earnings press release.

ArcBest reported Asset-Based second quarter revenue of $515 million, a per day increase of 6.7% compared to last year. We had 63.5 working days in the second quarter of 2017 compared to 64 working days in last year's second quarter.

Asset-Based quarterly tonnage per day was flat compared to last year's second quarter. For second quarter 2017 by month, Asset-Based daily tonnage versus the same period last year increased in April by 0.7%, increased 0.5% in May and decreased by 1% in June. June LTL tonnage was positive, and the decline in total tonnage was associated with deliberate reductions we made to the Asset-Based truckload-rated spot shipments that we handled.

Second quarter total shipments per day increased at a slower pace than in recent quarters. They were up by 4.4% compared to second quarter 2016. Total Asset-Based weight per shipment was 1,226 pounds, a 4.1% decrease from last year's second quarter and up 1.5% sequentially compared to first quarter of 2017.

Average length of haul on the Asset-Based shipments increased 2% to 1,038 miles compared to 1,018 miles in the second quarter of last year. On a sequential basis versus first quarter, length of haul was up a little less than 1%.

Second quarter total billed revenue per hundredweight on the Asset-Based shipments was $30.84, an increase of 6.1% compared to the second quarter of last year. Year-over-year comparisons to this yield figure were positively impacted by a higher fuel surcharge and changes in shipment profile and business mix. Excluding fuel surcharge, second quarter billed revenue per hundredweight on Asset-Based LTL freight had a percentage increase in the mid-single digits.

We secured an average 3.5% increase on Asset-Based customer contract renewals during the quarter. That average increase was 60 basis points higher than last year's second quarter and lower on a sequential basis.

In total, our Asset-Light businesses had revenue of $212 million, an 8.3% increase over last year's second quarter. On an adjusted basis, second quarter operating income for these services totaled $6.7 million, and adjusted EBITDA totaled $10.2 million compared to an adjusted operating income of $2.8 million and adjusted EBITDA of $6.5 million in the prior year quarter.

As we normally do, we are reporting July statistics for our total Asset-Based business. Those metrics are dampened somewhat by intentional reductions we have made in our Asset-Based truckload-rated business. During the summer, our Asset-Based moving business seasonally increases. We purposefully manage those -- these truckload-rated consumer-moving shipments to maintain the appropriate level of ABF Freight equipment capacity required to adequately serve our traditional LTL customers.

Also, the recent success we've had in improving linehaul efficiency and lowering our linehaul empty cost has reduced our need for Asset-Based truckload-rated spot business. Our strategic reduction of both of these types of truckload-rated shipments is impacting the July statistics on our total business trends.

I just want to clarify that the trends in our July LTL business are positive and reflect stronger growth and indicated by the following statistics for our total Asset-Based business.

Based on month-to-date results versus last year, we currently expect full month July business levels to be as follows: Total daily billed revenues to increase approximately 3%, the percentage increase in LTL daily billed revenue is expected to be in the high-single digits, while Asset-Based truckload-rated revenue is expected to be down significantly by double digits.

Total tonnage per day to decrease approximately 3%, with the percentage of LTL tonnage increasing in the low-single digits. On a sequential basis versus June, July LTL tonnage trends are above the historical average. Shipment counts to increase approximately 4%. The recent trend we've seen for several quarters of our average weight per shipment declining on a year-over-year basis continues, but at a more moderate level on an LTL basis. July LTL weight per shipment is expected to be down in the low single digits. July's average weight per shipment on all Asset-Based business declined further because of the impact of the changes in Asset-Based truckload-rated shipments.

Total revenue per hundredweight to increase approximately 6%. This Asset-Based yield metric is being positively affected by slightly higher fuel surcharges and changes in freight profile and account mix. Since the implementation of the current labor contract, which provides for the union employees' wage rates to increase on July 1 and health, welfare and pension on August 1, our sequential change in ABF Freight's operating ratio in the third quarter versus the second quarter has been roughly flat, ranging from a 10 basis point decrease in 2014 to an increase of 40 basis points in 2015.

Based on month-to-date results, we currently expect the July 2017 revenue for our Asset-Light businesses to increase by approximately 13% versus last year. Growth in the logistics portion of the Asset-Light business is being driven by increased demand for expedite services and dedicated truckload revenue in this year due to the LDS acquisition in September 2016.

In July, FleetNet is experiencing slight year-over-year revenue declines as they move past comparisons against the impact of changes in customer mix during last year's second quarter.

Consistent with the first 2 quarters of this year, the quarterly loss reported in other and eliminations line for the remainder of 2017 is expected to approximate $4 million. This includes the technology and innovations investments we have previously discussed.

As mentioned last quarter, our 2017 interest expense, net of interest income, is expected to total approximately $4.5 million for the year. This net interest expense estimate does not include changes in cash surrender value, which are reported in the other line -- other net line of our income statement, which we had income of $400,000 in the recent quarter. We consider changes in cash surrender value to be nonoperating items, and therefore excluded from our non-GAAP presentation.

Now I'll turn it over to Judy for some closing comments.

Thank you, David. As we look to the second half of the year, we are encouraged that the operating environment should remain favorable, based on various indicators we track. We continue to have a number of initiatives that we're working on to ensure an excellent customer experience, cost control and adaptability to the evolving market. Our sales team has been unified under the ArcBest organization. And after 6 months of this optimized structure, we're receiving positive feedback from customers about the trusted adviser relationships we provide to help solve their complex supply chain issues. By unifying all of our Asset-Light solutions under one umbrella, we have also made it easier for customers and our people to understand the full scope of logistics solutions available at ArcBest.

There were also a number of highlights in the quarter worth mentioning. In April, we announced that we moved up to -- 3 spots to #18 on Transport Topics' Top Brokerage Firms of 2017. Also in April, 4 of our ABF service centers earned the President's Quality Award for their achievements in 2016: Grand Island, Nebraska; Long Beach, California; Waco, Texas; and Little Rock, Arkansas. We congratulate the people at each of these locations for their hard work and dedication to excellent customer service, embodying the skill and the will every day. And in June we announced that we've moved up 26 spots on the Fortune 1000, the annual ranking by Fortune magazine of the 1,000 largest U.S. companies.

And David, I think we're ready to take some questions now.

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

(Operator Instructions) And the first question comes from the line of Amit Mehrotra with Deutsche Bank.

I want to ask about pricing, but I'd like to start with tonnage and shipment trends, if that's okay. The shipment growth was great. I just would've thought, maybe with the acceleration we saw in industrial production, we would've seen some follow-through on tonnage. If you could just talk about that, maybe the mix between e-commerce and the traditional industrial freight, and maybe what we could expect. And then in terms of the relationship between the 2, if you can just also help us on how that shifting mix of lower weight per shipment can impact the company's or your ability to sort of absorb the fixed costs in the business?

Well, if you look at our business on a shipment growth basis, we've seen some -- I think some pretty good trends. As you mentioned, contributing to that is the growth in some e-commerce shipments, also this residential delivery issue that we identified in the first quarter, actually started maybe last November, December, is continuing to impact our results. We had a -- over 40% increase in residential deliveries not related to our moving business in the second quarter as well. And so with our mix of customers right now, we're continuing to see our growth in smaller shipments. And again, we don't necessarily think that, that is bad. We just need to be sure that we're working through that with our customers and identifying situations where we need to improve the value that we're receiving. And so we've been taking some actions, including our action that we're going to be putting in place that we're referring to as cubic minimum charges, the CMC, on August 1 to address that. If you -- I mean, we've observed the tonnage trends that we've seen from some of the competitors. Certainly, ours is less of an increase than that, but we really feel good about the pipeline for unit counts. Our business activity is good. The conversations that we're having with customers is good. I think it just speaks to the different mix of business that we have right now, and that is certainly being addressed from a value and pricing standpoint to the extent that it needs to be.

Okay, that's really helpful. And just one follow-up on the pricing front. A couple of things, one is that I'm just trying to understand, the yield obviously is very strong, and you talked about the pricing impact on that. But when -- my understanding is when the weight per shipment comes down, the yield can kind of optically look higher. So I'm just trying to decipher in the quarter kind of the same-store pricing, if you will, and what that mix impact was. And then as you guys institute this new pricing strategy, which is -- which sounds really good and makes a lot of sense, can you just talk to us about how much of that new strategy will be applied across the entire freight that you guys handle and just get a sense of the -- what the effective impact of that would be based on customers' -- different pricing options the customers have?

Yes. We -- I mean, we feel good about the, what I would characterize as the pure pricing increase that we received on the LTL shipments. I think, David, it's mid-single digits is what we would characterize that as. And so you can also look to our deferred pricing increases, which I think about 3.5%, which is a year-over-year comparison. And that's an indication on our most price-sensitive accounts. So just outside some of the actions that we've taken, we feel good about where we're landing there. When you look toward August 1 in this space-based pricing that we're putting into place, we're in the process of having conversations with the customers that are affected by that. Our sales teams are very well educated on the topic, going out and having good conversations. Some customers have a greater portion of their shipments that are affected by this change. Others have less of an effect. And so it's something that we're going to be monitoring, and we're going to be watching it unfold. But suffice it to say that we're taking this initiative because we do believe that it will improve our revenue and our profitability. But we're going to see how this unfolds in August and as we go through the rest of the year, and we're very encouraged by the conversations that we're having with customers so far.

Our next question comes from the line of Ravi Shanker with Morgan Stanley.

This is Diane on for Ravi Shanker. So it looks like the -- your revenue growth decelerated from your May-to-date update. And it sounds like that's mostly a result from your choice to reduce the TL business. So I was just wondering, when did you make this decision? Was it sometime in June?

Well, it did. It was I think during the month of June that we accelerated our efforts to reduce those shipments. And so you do see some effect of that in June, particularly towards the end of June.

Okay, got it. So this will continue to impact your Asset-Based results for the rest of the year?

Well, no, not necessarily. What we're reporting on at this point is just what we were seeing in July. And again, one element of this relates to our U-Pack moving shipments. And that's a seasonal business that really is concentrated in the summer months. And so -- and it's also the case that based on how we approach that, we can encourage additional shipments or we can purposefully manage those down. And so it's definitely not a permanent decision, definitely not.

Okay. Okay, great. And then our second question is, what has the recent customer feedback been on your DIM weight pricing initiative?

It's actually gone well. We've had our sales team out having conversations with customers. They've -- they are working through these items with them, directly with them. And some of the customers have actually expressed appreciation for the simplicity of the CMC rate table and the fact that it will help ensure accurate quotes in order to avoid kind of our weighing and research folks coming in after the fact and adjusting the pricing based on what actually that shipment -- the profile was. So anyway, we're working through this. Another area that is coming up is customers that use TMS systems, wanting to make sure that these changes are adequately reflected in those systems. And to the extent that there's difficulty there, we're able to work through what you call an API interface, an application programming interface is what API stands for. And that really can be utilized in helping with this transition while they're getting their TMS system updated. So that's something that's come up in some of the articles that I've seen written. And we just have more than one way to address that in the meantime. So...

Our next question comes from the line of Chris Wetherbee with Citi.

I wanted to ask a little bit more about the pricing initiative. I guess it starts on August 1, and maybe if we could put some numbers around what you think the impact might be to the overall Asset-Based business. And then also thinking about it in the context of the sequential OR improvement, David, I think you mentioned sort of typically about flattish from Q2 to 3Q. You're going to have maybe a couple of months of this dynamic change in that third quarter. Just kind of curious how that might have an impact that historical standard.

Well, as we said a couple different times, when we announced it and then I think I've mentioned it already, we're -- we wouldn't be taking this action if we didn't think it was going to positively affect our revenue and our profitability. But we're actually not taking that a step further and giving any kind of guidance surrounding it because it's a situation where you're going through individual conversations with customers about how this impacts them. And although we feel very strongly about this initiative and that it should be deployed within these accounts, we want to allow the implementation of it, and we'd like to see the results come in. And then I think it will be more obvious how that actually affects our numbers. The OR that you mentioned between second and third quarter, as David mentioned, is typically flattish, or in the last 2 years anyway, and those 2 years are really the best comparison because we had a union contract change to apply our wage increase on July 1 rather than April. So that's just historical information that we provide to you. But David, I don't know if you want to mention a few of the other items that perhaps people should be keeping in mind relative to that.

Right. I think this is a good opportunity to kind of highlight some of those things. And one of those is the fewer working days in -- that we will have in the third quarter. We will have 62.5 working days in the third quarter of this year versus the 63.5 that we had in this year's second quarter. So that's an impact there as you have less revenue for the quarter as a whole to cover normal costs. Also, Judy mentioned the wage increase that's effective July 1 this year. This is the last year of our 5-year contract. And the rate increase this year on wages is 2.5% versus -- in previous years, that was 2%. There's other things that could impact, I think Chris you mentioned, the CMC, and we're expecting that to be a positive impact to our business overall. Other yield initiatives that we're doing that you -- that are reflective in our second quarter results, for instance, could be a positive impact as well. So I think there are several gives and takes to that sequential comparison to weigh in all this. The timing of the GRIs is I guess the last one that I would offer. Just in this year, we had a GRI -- along with the other yield initiatives that we did, we had a GRI on May 22 effective date. And so the timing can somewhat impact that as well.

Okay. That’s helpful to weigh out all those dynamics. The other sort of follow-up I have, which is, you're going back to some of the restructuring efforts you took towards the end of last year, taking implementation beginning of this year. Just getting a sense of maybe sort of the progress in the second quarter, how much of that sort of benefit you're just beginning to see realized? I think you mentioned $15 million previously. Just want to get -- for the full year, trying to get a sense of maybe how that kind of played out in the second quarter and how to think about that in the back half.

Well, there was about $10 million or so of that, that really related to, I think, kind of the wage and benefit side of things and perhaps the other 5 related to write-offs of different systems and that sort of thing. And so when I step back and think about that and look at the second quarter, I think it's -- the second quarter contained its representative part of that annual savings, is what I'd say. And we're actually pleased with how that's gone, and it's certainly contributed to the results that you see for both the Asset-Light business and the Asset-Based business.

Okay. So proportional is the way to think about that probably for the rest of the year too, I guess.

Yes.

Yes, I think the other thing to remember, keep in mind, is that we put some of those cost savings in place at the beginning of November, and so those were -- in other words, it's not -- you have to consider that when you get back to the fourth quarter in terms of your modeling.

Our next question comes from the line of Brad Delco with Stephens Inc.

For David, you talked about the July tonnage, and I know there was -- for the total Asset-Based and then for LTL, specifically. And you made a comment about seeing sequential trends from June to July. Can you just talk about that in more detail? I think there's a little concern in the market that things have slowed down in July despite some decent economic data points. I just want to make sure that it's clear what really you're seeing in the business today.

Yes, no, I think that's right. I understand what you're referring to. And for us, I mean, July on our LTL-rated business, sequentially from June, was actually on the better end of the historical averages. And so -- and that's moderate, so I don't know if there's...

But you can't give a number or put in the context. Sequentially, it's usually up or down 1%, and it was actually X or Y?

Brad, this is David. I'll tell you what we do is, the guy that looks at it for us, he looks -- goes back in history several years and just looking it kind of where it ranks in that area. It's above average. So we've had more historical months that had less of an increase than what we're seeing. So that's -- that was what, the basis of that comment.

Okay. And then maybe, Judy. Good improvement on the Asset-Light side here. Just curious what you think, is this sort of momentum that's building and we should expect? I know you guys don't provide guidance. But sequential improvement in, I guess FleetNet, it sounds like things are getting better, but also on the ArcBest side as well. In the back half of the year, and is it mostly related to tightening truckload capacity? Or what other factors should we attribute to things picking up or maybe slowing down?

Well, one thing, and this is just specific to the second quarter that I'll mention is, our visibility on what's happening in the market is pretty good because we have the Asset-Based, what's going on there. We have kind of the volume truckload business that we see when the market trends on, and then we have the expedite business that we can see what -- the activity there, and then just the truckload brokerage business as well. And then now, we're adding the dedicated markets to that. And so what that does for us from a, let's just call it, a yield management basis is it really is informative and it enables us to consider how best to approach the market. And we had conversations about the tightening of the capacity towards the end of June, and we reacted to that earlier in the month of June. And I think that allowed us to have less of a margin compression than some of the Asset-Light competitors that we have out there. And again, it's -- I think it stems from the different services that we offer and our insight into what's happening with those markets and the availability of capacity. And so -- and that's something I think that perhaps is unique to our company. And so we're going to be keeping that in mind. The only other thing I'd say is we're -- we need to make more progress on our truckload growth because within our customer base, there is a vast opportunity there and we need to take advantage of that. So what I'm hopeful of, is that as we go through the rest of the year, the market clearly tightened at the end of June. Maybe it's a little less tight in the month of July. But if it continues down that path and we start to see the contractual business that is renewing, renew at a higher price level, that's going to help. That's going to continue to help these services that we're offering be of -- the appropriate value, let's just say, for the services that we're offering. The only other thing I'd say though is that as we went through the, kind of second half of last year, we did have some healthy expedite business trends and we're going to be comparing back against those. Now I hope that we're going to continue to do well against that, and certainly, our team is engaged and ready to make that happen. But I just point that out as a comparison.

Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets.

Judy, can you go back over the decision around the truck -- or to handle less truckload-rated spot business. It sounds like -- I think I understand the impact on the tonnage trends late in the quarter and then into July. But just strategically, I mean, seasonally you'd have the moving business pickup. What are the other impacts in the model? And how does that help maybe the margin profile, or what does that do for the business? If you can just walk through that, that could be helpful.

Sure. We have the ability to encourage spot truckload business, and we talked about that on a number of these calls, and with you and other investors in the past. What is a part of that is our U-Pack moving business. And I think David outlined that that's a seasonal business. And really, the opportunity is greatest during the summer months. And so for the 20 years that we've had that business, we've -- that plus the truckload business that we have, we've always thought through and managed, particularly in the summer months, because you have to ensure that you have capacity for your regular, good LTL customers. And you want to be sure that you -- that it doesn't disrupt the service that you're providing them. And so as we're seeing some of the LTL trends improve, and we've seen that improvement as we've kind of marched through this year, we want to be sure that we have the capacity to serve those customers. So we're making decisions to reduce the spot volume business that we have. And again, we've commented that, that includes our moving business. But as we start to see available capacity in -- that can service those shipments, we can go right back to encouraging those, actually very quickly. And we're just balancing what works best for us from a service and, I think, revenue growth and profitability, perhaps more profitability than revenue growth in that case. Does that make sense?

So at a high -- it does. And so at a high level, basically, you're saying that the LTL market is firming up, and you just want to make sure that you've got line-haul capacity in your network to handle the additional LTL business that you're seeing?

Well, it's in addition to line-haul capacity. It's also the city pickup and delivery capacity. Because as we've mentioned, we've had an increase in non-U-Pack residential shipments. We also have to consider that as well. And so you want to be sure that you're able to deliver on the promises that you're making to customers, and it's just -- that's a factor in addition to the ones that you mentioned.

Todd, I have one other thing to add to that is that we have had great success in our line-haul team reducing schedules. And when you do that, that takes some of that need for backhaul where you have to buy that in the spot market, and as we -- this interplays into the -- our logistics Asset-Light, the tightening margin compression that we talked about over there on that side, that's where you would buy this, and that would be more expensive. And so we're -- we were pleased to see the reductions there.

Yes, I think we had about a 7% or 8% reduction in empty miles. And so that -- again, that's a good thing.

Okay. Yes, this all helps. That kind of ties all of it together. David, if you'll let me ask just one more quickly. Judy, when you think about the sales realignment and kind of where you're at in the process, what are some of the main metrics that we can see externally from the initiatives that you've done and maybe to kind of benchmark the progress that you're having from the realigned sales force and kind of the opportunities from cross-aligning across the businesses?

Well, what we've tried -- David and I have tried to work through this in a way that we -- we're developing information that's helpful to you for you to see it. First of all, just the -- just some commentary on that change, we really feel good about the change. It's unified our sales force. It's coordinated them much better. We have a customer experience management system that everyone is working with. It's allowing us to see opportunities, to manage those opportunities. And we're continuing to have great stories about business that has entered the company historically in one place, say, LTL or ground expedite, that is able to be expanded through discussions with customers about the solutions that they need, that having all of the people aligned and coordinated has been a positive thing. But when we look at the percentage of accounts that are cross-sold, we've seen a continual march up in that percentage of, say, go back to 2012, it was about a 30% figure from percentage of accounts that are cross-sold and as we close out the second quarter, it's 37% of our accounts. And so what that says to me is we're making progress, but we still have a lot of upside to go. And then the percentage of revenue from that secondary cross-sell group is also elevated. So back in 2012, that was less than 10%, and now it's almost 13%. And again, we're just getting started on many of our efforts to really bring about that big customer opportunity that we've outlined for you in the past.

I want to manage the rest of this time because we've got a call of a competitor right next to us. So just please keep that in mind as we come down to the end of the half hour.

Our next question comes from the line of David Ross with Stifel.

And David, I will keep it to one question.

Good deal.

With the new administration in Washington, a lot of moving parts, nobody is really sure what's coming out of there. What are you seeing or hearing, Judy, in terms of pension reform? And anything that's being considered right now that could be helpful for ABF?

Well, there's some discussion about that, and the -- it's more, at this point, discussion. There's a UPS proposal that really is attempting that is -- again, it's not a bill, but it's a proposal that is attempting to address the Central States problem, specifically. It includes proposals like a low-interest, long-term federal government loan to troubled pension plans to cover their cash flow shortages. The Central States is probably what they're targeting when they're trying to do that. But the thing that we're doing is, we're involved in the discussions. We're following what's happening here. But it's an extremely complex problem with the potential to really harm thousands of retirees. And what our issue has been is that we've paid every dollar that we were contractually obligated to pay, and we're concerned about the retirees that work for our company actually seeing those benefits because of the situation that Central States is in. But the one, I think, thing to keep in mind about all of that is there's a lot of eyes on it. There's a lot of discussions about it. There was a recent insolvent fund, it's -- I think it's 707, the Local 707 Fund. And the 707 Fund reality is that the benefits of -- for those workers are actually haircut back at an extreme level. And so the outcome there is, I think, it telegraphs what could happen with these funds if they're allowed to go insolvent. And so it's a vested interest that we have in making sure that our people are considered in that, and that we know what the effects are back on the company. But I can't say that I know how those are going to do, because they haven't been introduced as bills and we haven't been able to see anything really kind of making its way through the process. But I can tell you that we're in a position where we're involved, and we're paying what we should pay according to the contract. And again, we're going to support proposals that we think help the situation.

Are you more or less optimistic than you were a year ago about this?

I don't really know how to answer that. Sometimes when there is a need -- a great need to get things done, that's when it gets done. As we know, we've seen some really, really important things not make their way through. And so I think having pressure on the situation may help that. But I would say, really, I'm about the same as I was a year ago, but that's more about just the difficulty in getting these things through Congress or some other process in Washington.

Our next question comes from the line of Scott Group with Wolfe Research.

It's Rob Salmon on for Scott. With the new cubic minimum charges that you guys recently announced, can you give us a sense as what -- to what percentage of business this is going to impact across ABF's -- ABF Freight's network? And how should we be thinking about kind of the overarching impact of the increased price?

Well, as I've mentioned a couple of times on this call and I think when we announced it, we're entering into this approach because we feel like it helps us to recover the value for the services that we're providing. Because it does that, we think it's going to positively affect our revenue and our profitability, but we're really not going a step further and saying what the impact will be. And that's because we've got conversations that we're working through with our customers, and it's a process. And so Rob, that's where we're going to leave the discussion on that. So...

Initially, will this impact all contractual prices -- like, any contractual arrangement, would that initially hit it? Or do we have to wait until the contract cycles through?

Well, again, there's a variety of answers to that question, but it is the approach that we're going to use, and so we're very intentional about that. And so -- but there is a time period that it takes to work through these things.

Okay. And then as a follow-up with regard to purchase transportation, we didn't see much inflation in the purchase transportation and rentals line expenses [cord]. And I think it may be related to some of the initiatives that you guys have embarked upon. But could you give us a sense of what, if any, cost inflation you experience on the truckload side as a result of that market being a little bit tighter? And what you're doing differently to mitigate that potential cost inflation looking forward if the market is really tightening here?

Well, we -- the business -- the purchased transportation on the Asset-Based side, is that what you're referring to? Are you referring to it in general of -- in the Asset-Light side as well?

Asset-Based, but...

Okay, okay. Well, let me answer that, and then we'll talk more. But on the Asset-Based side, this is about 3% of -- that we have that relates to purchased transportation outside of rail. And so it's actually pretty small. And so we -- really, I wouldn't characterize anything that we saw there as unusual. And in fact, we're using that to actually help us with the overall management of linehaul, which, again, reduced empty miles by 7%. And so we're using it effectively. And I think when I step back and I look at what's happening there, I'm more encouraged by how we're using it than concerned about any issue related to the rates there. And again, because it's so small, I don't think that that's an issue that's really going to be material for you or for us. And then I think on the Asset-Light side, we talked about the margin impact that we had. We had about a 40 basis point impact whenever you looked year-over-year. And then we had a sequential improvement in our net revenue margins. And so, again, because of the amount of spot business versus contractual business that we have there, I think we have the flexibility to address those increases through pricing, to some extent, in the marketplace with the shippers. But I think as things get even tighter, we have, perhaps, more flexibility to address that because of our mix of spot and contractual business. And even some of our contractual business on the Asset-Light side, we have the ability to spot quote some of those shipments. So -- hope that helps.

Rob, we're going to try to get a couple of more in here before the end of the time...

Our next question comes from the line of Jason Seidl with Cowen.

I'll try to be quick. Two quick ones. Number 1, Judy, you were talking about sort of that home delivery product and how you think that the margins can get better as you guys just increase some productivity around it. Can you talk a little bit about pricing that product? And do you think there's sort of a learning curve for ABFS? That's number one. Number two, can you talk about your line-haul service? And are you seeing rates go up for substitute truckload? And also, could you speak to if you've seen any service disruptions on the rail side?

Okay. The -- on the home delivery, we have a lot of experience going into neighborhoods because of our 20 years of experience with our U-Pack business. So we're always learning. But I think we're up on that learning curve, perhaps, more than others because of the work that we've always done in these residential deliveries. On the line-haul question, the costs -- purchase transportation costs, that's a good question. Rob just asked that question, and what I said was, it's a relatively small part of our Asset-Based spend. It's like 3% or less, and it actually helps us with efficiencies in that business. So I'm not very concerned there about inflation really affecting, overall, our numbers. And on the rail disruption side, I was reading about that last night, but I -- we haven't really seen anything that's been a material impact on us from that standpoint. So -- but I did see some commentary about what you're referring to, and I may ask some more questions about that later today.

Carolina, I think we've got time for one more question.

Our next question comes from the line of Ari Rosa with B and A [sic] [BofA] Merrill Lynch.

Just want to understand. So think about this DIM weight initiative. Could you talk about what's the cost associated with implementing dimensioners and then also address what challenges may be or any pushback customers might experience, particularly smaller customers? Our understanding is, sometimes dimensional pricing can be a little bit of a challenge for them. So just kind of wanted to hear how you guys are addressing that and then what are the cost for ArcBest associated with that.

Great questions. The -- we're not going to provide -- we don't feel like we should provide the specific cost of our dimensioners. But just understand it's a -- I think in the relative sense, it's a modest cost for -- especially for the benefit that you gain for it. And I'll just address specifically the small customer. Our drivers have been dimensioning freight for many, many years. And so if a customer doesn't have dimensions on their freight, our driver is going to be dimensioning that freight for them. And in addition to that, we're -- we can verify that with the static dimensioners that we'll have at our distribution centers. So that all works. And the other thing I mentioned, if they're on a TMS system, we have another strategy that allows us to work with them to do API calls to get that information for them. And so there's a number of different ways to work through this. We really feel like it's appropriate. It's simpler. And the customers that have really gotten their sleeves rolled up with us on it have appreciated the simplicity of it. So, yes.

Okay, terrific. That's great. And then I don’t know if I can squeeze one more in, but let me try. Just -- so it seems like you guys are having a little bit of a shift in terms of your thinking on pricing. And obviously, the pricing initiatives seem to be paying off pretty nicely here. Are you targeting anything in terms of incremental margins on the LTL side? And how should we think about maybe modeling that going forward?

Well, although we did have good incremental margins as you moved into second quarter versus first, we don't target incremental margins on a company or a service line basis like that. What we do is we manage account profitability. And we are working through accounts that we're not getting the value that we are offering in terms of the handling of those shipments, and we're working through those. We've several different initiatives this year, and the largest is this cubic minimum charge initiative to really, again, recover more fully the value that we're providing the customer. And again, we think it's more appropriate for those customers, and many of the conversations that we've had with them have recognized that. So...

All right. Well, Carolina, I think we're done. And I want to thank everybody for joining us this morning, and we appreciate your interest in ArcBest. That concludes our call.

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