ArcBest - Q2 2020
July 29, 2020
Transcript
Operator (participant)
...Greetings, and welcome to the ArcBest second quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded on Wednesday, July 29th, 2020. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead, sir.
David Humphrey (VP of Investor Relations)
Welcome to the ArcBest second quarter 2020 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President, and Chief Executive Officer of ArcBest, and David Cobb, Chief Financial Officer of ArcBest. We thank you for joining us 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.
Before I turn it over to Judy, I want to take a moment to congratulate her on being named one of the top 10 women in logistics by Global Trade Magazine. This is a tremendous honor, and I want to let her know how proud we are of her on this well-deserved recognition. With that, I'll turn it over to Judy.
Judy McReynolds (Chairman, President and CEO)
Good morning, everyone. I appreciate all of you joining us this morning. As you are aware, the second quarter of this year started under the full weight of the coronavirus pandemic. Its impact was felt by everyone and in almost every aspect of the economy. While the effects were still playing out during the first quarter call in May, you heard me mention that during times like these, I feel ArcBest shines the brightest. This sentiment has not changed. In addition to having a strong balance sheet and the long-term relationships we have established with our customers, I credit much of the success we have had over the last three months to the hard work of our employees and to the culture we've created here that cultivates creative problem-solving for the challenges of the times.
I am incredibly proud of how our employees have operated in the face of adversity, especially our frontline teams, who come in day in and day out, focused on keeping product moving and providing the type of world-class customer service that is expected when one does business with ArcBest. We have made a lot of progress over the last quarter in fighting one of the sharpest declines in the economy since the Great Depression, and David and I are looking forward to going through the results with you today. In the Asset-Based business, we saw the shipping patterns of many of our customers highly affected by the pandemic outbreak. The impact on individual customers varied, with some, like those shipping essential products, seeing increased activity, while many others had business levels below the previous year. We experienced significant increases in residential delivery shipments related to growth in e-commerce.
Customers with an online order presence saw additional shipment volumes, especially those with products that are used in the home, such as exercise equipment and outdoor storage sheds. Despite the growth in e-commerce, with significant reductions in total shipment and tonnage levels in our Asset-Based network, it was imperative that we match our labor and other network resources with the business levels of the period. At the height of the pandemic, we had to temporarily lay off approximately 1,000 employees and reduce many equipment and Supplemental resources that are normally utilized in our network. Our operations team responded well to this heightened challenge, and as a result, most all of our operational metrics we use in managing our business improved over last year's second quarter, many by at least 5%.
Also, despite the weak market, our yield management strategy caused us to be successful in achieving needed account pricing levels. Reductions in the core account, LTL-rated shipments handled in our ABF Freight network, were the biggest contributor to the total shipment and tonnage decline. As we experienced earlier in the year, during the second quarter, we benefited from our strategy of utilizing lane-specific data to identify capacity opportunities and fill them with truckload-rated spot loads, as well as heavier transactional LTL-rated shipments. During a period when shipment levels from regular customers were lacking, handling these spot shipments in lanes that had available capacity helped mitigate the total business declines we were experiencing, while allowing us to more efficiently utilize available network resources. I am incredibly proud of how our operations, sales, and yield teams responded during this unexpected period in our business.
They have executed at exceptionally high levels and illustrated our ability to remotely maintain trusted customer relationships while proactively flexing our Asset-Based cost structure and our account pricing in response to an ever-changing environment... Freight mix changes related to the lower business levels, combined with the Supplemental spot and transactional shipments that we opportunistically added in the network, contributed to a decrease in total second quarter revenue per hundredweight. Also, as we've seen for some time, fuel surcharge revenue reductions compared to last year's second quarter contributed to lower revenue per hundredweight comparisons. However, despite the sharp business reductions our industry experienced, we are pleased that pricing rationality continues. Later in the call, David Cobb will offer more specific details on our contract renewals, but they were good and comparable with last year.
Excluding the impact of transactional shipments and changes in fuel surcharge, we experienced high single-digit percentage price increases on our core accounts LTL business. Moving on to the Asset-Light segment. Significantly fewer total shipments due to business closures and reduced customer shipping levels related to the pandemic, combined with slightly lower total revenue per shipment, were the primary causes of the year-over-year second quarter revenue decrease in ArcBest Asset-Light segment. Automotive plant closures throughout April and May, combined with continued weakness in industrial manufacturing, reduced the demand for expedite services and thus impacted daily shipment counts in that portion of the business. The availability of lower cost capacity resources in the marketplace was another factor that contributed to the reduction in expedite business levels. Similarly, the Asset-Light revenue contribution from truckload brokerage was below the previous year, as shipment counts and average shipment revenue declined.
The effects of the pandemic, combined with declines in the petroleum industry, impacted shipments from our traditional Asset-Light truckload customer mix. The largest second quarter year-over-year revenue declines in that segment of our business were from customers in oil and gas, wholesale durable goods, and in the manufacturing sectors of metal products and industrial machinery. Asset-Light margin compression resulting from these market dynamics decreased second quarter operating income relative to the previous year. As also seen in the Asset-Based business, reduced consumer household goods moving activity during the uncertain pandemic period unfavorably impacted Asset-Light financial results. In these challenging times, we are finding that supply chain optimization and the need for unique logistics solutions is more important than ever for our customers. As a result, our Managed Transportation services continue to flourish, and they were a positive contributor to the Asset-Light results.
Managed daily revenue grew 82% versus last year's second quarter, and through the first half of the year, Managed revenue has increased 69%. Crafting managed solutions allows us to combine our experience, knowledge, and the full impact of our assets and capacity resources in a way that helps our customers navigate the uncertainty they are facing in the current environment. At FleetNet, both roadside repair and preventative maintenance events declined, reflecting the impact of the pandemic on the business activity of FleetNet's customers. As a result, second quarter revenue was below last year. The reduction in this quarter's operating income was primarily related to the lower event count. Next, I would like to ask David Cobb to go over the earnings results and operating statistics.
David Cobb (VP and CFO)
Thank you, Judy, and good morning, everyone. Let me begin with some consolidated information. The second quarter 2020 consolidated revenues were $627 million, compared to $771 million in last year's second quarter, a per-day decrease of 19%. On a GAAP basis, we had second quarter 2020 net income of $0.61 per diluted share. This compares to $0.92 per share last year. As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release, adjusted second quarter 2020 net income was $0.67 per diluted share, compared to $1.04 per share in the same period last year. ArcBest second quarter 2020 effective GAAP tax rate was 23.4%, comparable with the non-GAAP effective tax rate.
We currently expect our full year 2020 non-GAAP tax rate to be in the range of 23%-24%, while the effective rate in the quarter may be impacted by items discrete for that period. This range is lower than the expected range we calculated at the beginning of the year, primarily reflecting changes in pre-tax income levels and certain tax credits and lower non-deductible expenses as a result of reduced travel-related costs experienced during the pandemic. Full details of our GAAP cash flow for the second quarter are included in our earnings press release. At the end of June, our cash and short-term investments balance totaled $574 million. Our total liquidity, including our cash and borrowing availability under existing facilities, was $602 million.
Our financial covenants continued to be in good place at the end of June, as our adjusted leverage ratio was at 0.4:1, compared to the maximum allowed of 3.5:1. Our interest coverage ratio ended the quarter at 7.38:1, compared to the minimum allowed of 3.5:1. Our total debt at the end of the second quarter 2020 was $533 million and included $250 million in our credit revolver, $85 million borrowed on our receivables securitization. Notes payable, primarily on equipment for our Asset-Based operation equaled $198 million. The composite interest rate on all of our debt was 2.1%.
Combined with our cash balances, we ended the second quarter with net cash of $41 million, compared to net debt of $3 million at the end of the first quarter, thus an improvement of $44 million. We continue to monitor our customer base regarding accounts receivable and the impact of the pandemic on their payment schedules. We entered the pandemic period in a good place with our receivables, and that has benefited us through the recent months. Beginning in April, we began to see the pandemic have some impact on the timing of customer payments. Since May, the payment trends of our account base have generally stabilized and are improving. Because of these factors and the increase in net cash position, we're reviewing options for repaying during the third quarter the $225 million of incremental borrowings that we drew down in March of this year.
Though we did not make treasury stock purchases during the second quarter, we have maintained this program along with our quarterly dividend payments in order to enhance the shareholder value. The capital allocated to these programs has been at reasonable levels, and we will continue to monitor these programs in consideration of cash requirements for operations relative to potential economic weakness and uncertainty. At the beginning of April, we implemented cost reductions that included a 15% decrease in the salaries of all non-union employees, suspension of employer match of ArcBest non-union 401(k) plan, a 15% decrease in the fees paid to ArcBest board members, as well as other cost reductions. When compared to second quarter 2019, these compensation-related reductions resulted in savings of approximately $15 million in second quarter of 2020.
We are experiencing some momentum in our financial trends that include sequential business improvement, increased cash levels, stabilized customer account payment trends, and improved EBITDA. While we continue to face uncertainties in the economic outlook, some cost reductions will be restored beginning in the third quarter of 2020, including restoration of non-union salary rates to previous levels, the 401(k) company match, and the board fees. We believe these actions are warranted, especially considering the sacrifices made by our employees since the outbreak of the pandemic to continue serving our customers and the nation. On a sequential basis compared to second quarter 2020, ArcBest anticipates that the increase in third quarter 2020 expense associated with these cost restorations will be in an approximate range of $10 million-$15 million.
Asset-Based second quarter revenue was $460 million compared to $560 million last year, a per-day decrease of 18%. Asset-Based quarterly tonnage, total tonnage per day decreased 13.8% versus last year's second quarter. For second quarter 2020 by month, Asset-Based daily total tonnage versus the same period last year decreased by 14.3% in April, decreased by 14.2% in May, and decreased by 13.6% in June. As Judy mentioned earlier, these business level decreases that were primarily driven by the impact of the pandemic on our customer shipping levels were somewhat offset by the addition of spot truckload-rate shipments and LTL-rated transactional shipments added in order to utilize available equipment capacity in the ABF Asset-Based network.
Total shipments per day in the second quarter decreased by 13.3% compared to last year's second quarter. The year-over-year level of reduction in shipments was less for each sequential month of the quarter. Second quarter total billed revenue per hundredweight on Asset-Based shipments decreased 4% compared to last year. Excluding fuel surcharge, billed revenue per hundredweight on Asset-Based LTL-rated freight was slightly positive during the quarter. On Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter, the average increase was 3.2%, which was comparable with last year's second quarter. Pricing and traditional published LTL-rated business, excluding fuel surcharges, increased by a percentage in the high single-digits. On an adjusted basis, our Asset-Based second quarter operating ratio was 94.4%, compared to 93% in 2019 second quarter.
So far in July, as of business through July 27th, preliminary Asset-Based statistics versus last year are as follows: Asset-Based billed revenue per day decreased 7%, total tonnage per day decreased 5%, total shipments per day declined 6%. Total billed revenue per hundredweight decreased approximately 2%, impacted by lower fuel surcharges and freight mix changes. Billed revenue per hundredweight, excluding fuel surcharge on LTL-rated shipments, was flat and was driven by profile changes related to the addition of transactional shipments. Excluding fuel surcharge, pricing and traditional published LTL business in July 2020 increased by a percentage in the high single-digits compared to July 2019.
In addition, the average increases on contracts, contractual renewals, and deferred pricing agreements negotiated so far during July of 2020 are running ahead of those obtained in the recent second quarter and better than last year's third quarter. In recent years, the historical average sequential change in ArcBest Asset-Based operating ratio in the third quarter versus the second quarter has been roughly flat. However, due to the impact of the COVID-19 pandemic, the 2020 sequential operating ratio comparison for this period may not be comparable to historical trends, depending on business levels through September. The reinstatement of previously implemented salary rate reductions and other cost reductions that I mentioned earlier will impact Asset-Based operating results in the third quarter relative to the second quarter. The impact of these additional costs on third quarter profitability was considered in our decision to restore them.
Though some operational resources are being added back as business improves, those costs will continue to be carefully managed to business levels. The sequential change in the operating ratio will be influenced by the level of sequential revenue increase that exceeds the cost restoration that I mentioned previously, and the annual contractual rate increases in union wages effective July 1st, and union health and welfare rates effective August 1st. For the Asset-Light business in total, daily, daily revenue in our combined Asset-Light businesses decreased 15% versus last year's second quarter, reflecting revenue declines in both the ArcBest segment and at FleetNet. The total Asset-Light business operating income was $2.1 million in the second quarter, compared to operating income of $3.1 million last year, with a decrease primarily due to reductions in total business levels, particularly in our expedite operations.
Asset-Light revenue for the ArcBest segment, excluding FleetNet, is flat in July on a preliminary basis compared to the prior year. So far in the month, purchased transportation expense is a greater percent of total revenue, which will result in overall margin depression for the month when compared to July a year ago. This morning, we filed an 8-K that included our second quarter 2020 earnings release, along with an exhibit that provided some additional information about our, about our current quarterly financial results, along with our recent business levels and our future expectations on certain financial metrics. This information that includes more details on our July business trends should be helpful in modeling expectations for 2020 financial results. Now I'll turn it over to Judy for some closing comments.
Judy McReynolds (Chairman, President and CEO)
Thanks, David. Our outlook going forward remains positive. While none of us here are in a position to predict what the economy is going to do in the coming months, the indicators that we follow are showing signs of improvement. There are some predictions of a second wave of the virus in the fall. If that occurs, it could impact fourth quarter business levels and our financial results for that period. However, we remain positive about the company's trajectory and are in a strong position to respond to whatever the rest of this very unpredictable year may have in store. For those of you who have been following ArcBest for a while, I hope that you can see how much the company has transformed over the last decade.
We have worked hard to diversify our business model, to not only allow us to provide a wider range of solutions and services for our customers, but to also synergize these services to make each individual component stronger. We have increased our utilization of data and technology led by our in-house ArcBest Technologies group, to integrate innovative solutions into our processes and the services we provide. These efforts, combined with our customer obsession and nearly a hundred years of shipping experience, have paid off, and we continue to receive high marks from our customers. I know I touched on this in my opening remarks earlier, but I credit this to the strength of the culture that we have cultivated here at ArcBest. Our team fully embraces our core values, and it's been this commitment that drives our team to excel, regardless of the circumstances or the environment.
2020 has indeed proven to be a difficult year, and so far, we have successfully navigated the unexpected challenges it has presented. I continue to admire how our employees have responded to the difficulties presented them over the last four months, and how hard they have worked despite these setbacks, to keep essential goods moving throughout our nation. With business trends improving and in acknowledgment of this hard work, we are very pleased to be able to reverse some of the cost-savings measures we took earlier this spring. As always, we will continue to monitor business levels and make adjustments where necessary. However, I truly believe that we have some of our best work ahead of us, and I look forward to sharing all of it with you in the coming months.
Now I'll turn it over to David Humphrey to conduct our question and answer session.
David Humphrey (VP of Investor Relations)
Okay, Frank, I think we are ready to take the questions. I know we've got some folks in the queue, so go ahead with that.
Operator (participant)
Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please, for the first question. Our first question comes from Chris Wetherbee with Citi. Please proceed.
Speaker 11
Hi, this is Liam on for Chris. Thank you for taking my question.
Judy McReynolds (Chairman, President and CEO)
Oh, good morning.
Speaker 11
So first, I just want to start with the Asset-Based segment. I know that business trends improved year over year and sequentially into July. I'm just wondering if you can provide a little more color on the puts and takes when it comes to the sequential OR progression in the third quarter. I know you said it may not be comparable to historical trends of being flat or flat, but I was just hoping you could provide some context on the potential magnitude of deviation from that historical trend.
David Cobb (VP and CFO)
Yeah, let me, let me just start with kind of some thoughts around second quarter to third quarter along the Asset-Based business. You know, as I mentioned, revenues in July are running about 7% below July 2019. And when you compare that to the first month of the second quarter, April revenue being down 21%, that results in an increase in revenues in July versus April. That's gonna be above our historical norm of a comparison of, say, those first months of the sequential quarters. You know, we mentioned, I think Judy commented about our productivity measures being really good in the second quarter. Many of those improved by 85%. You know, that's metrics like shipments per DSH, our load average, and our empty miles being down substantially.
So, you know, you get that. A lot of that comes from the, from various things, and one of those being the flexibility of our labor contract, provided for us to ability to, to make, decisive and I think, timely resource changes. The other thing that was going on, and I think, you know, I want to say a lot of this just to give you a, a better context about, the environment, but, but the pandemic did allow our customers to kind of expand their appointment windows. And so there was also less congestion on the streets when you think about, closures and, and the like. At the same time, we were able to manage our schedules, to the customer requirements.
And then when you add on to this, our ability to use the technology around our pricing programs, we were able to fill remaining empty capacity to build good linehaul loads. And so, we do expect productivity levels to weaken some as we are serving customers working through their disrupted supply chains as we move forward with this economic reopening, if you will. However, we do expect that productivity should remain in a good place compared to the prior year, benefiting from technologies that we talked about and that application. Things like our dynamically priced freight, our network optimization software, our linehaul route optimization, light lane software, our load and dispatch point planning software and mobile dispatch.
And so with all that, I would say that with so far in July, our shipment count is ahead of our DSH hours. Additionally, on top of that, pricing has remained in a good place, so we do expect yield to cover inflation, including the annual union wage and benefit increases. So, you know, uncertainty in remaining the economy, it could unfavorably influence our revenue momentum for the months of August and September. But anyway, I just want to give you a broader context of what we're seeing and kind of how second quarter would compare to those things. Does that help?
Speaker 11
All right. No, that's very helpful. Thank you. Also separately, I know I just wanted to kind of follow up when you mentioned about yields. I know you're saying that revenue for hundred weight ex fuel on LTL rate of shipments was flat in July versus, like, a low single-digit increase in the second quarter. And I'm just wondering if you could provide some additional context on where you expect growth to trend going forward and how transactional shipments might be impacting that figure.
David Cobb (VP and CFO)
Yeah, I would just say that a lot of what you're seeing in that revenue per hundredweight metric is mix related in our business mix. And so we would describe the pricing environment as good, as positive, you know, rational would be into the term. But so we see that remaining in a good place.
Speaker 11
Got it. Finally, I'm just wondering if you could, like, provide any additional color on the sequential expected change in the Asset-Light OR in the third quarter, and how you provide some context on Asset-Based of Asset-Light segment?
David Cobb (VP and CFO)
Yeah, I would, you know, as Judy mentioned, there were a number of industries and sectors that impacted the Asset-Light business. So auto being one of those with plant shutdowns, and then our moving business was impacted significantly with, you know, with customers hesitant to want to move, and particularly in April. And so, sequentially, you know, you would with openings of auto plants and manufacturing plants, that particularly helps our expedite services. And then as you see, customers feeling more comfortable about moving, and so that would help our moving side of that business.
All of those are, you know, would we think trend positively from second to third quarter. I think the other thing that we're seeing in the market is, you know, whether this holds is a question, but capacity kind of tightened. And so, there's been reports about spot rates moving higher. You see the MDI being in a higher place as well. So all of those would typically bode well, I think, for our Asset-Light business as we move forward.
Speaker 11
All right. Thank you for taking my questions.
David Cobb (VP and CFO)
Okay. Thanks a lot, Liam.
Judy McReynolds (Chairman, President and CEO)
Thank you.
Operator (participant)
Our next question comes from Todd Fowler with KeyBanc Capital Markets. Please proceed.
Judy McReynolds (Chairman, President and CEO)
Good morning, Todd.
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
Hey, Judy. Great. Good morning. How are you?
Judy McReynolds (Chairman, President and CEO)
Good. How are you?
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
Good. So I wanted to follow up on the yield comments or the yield question there. You know, can you help square the 3.2% increase in contracts during the quarter with a comment around the high single-digit price increases you're seeing with core accounts? And then the comment that pricing has improved sequentially now into the third quarter. You know, it seems like a pretty quick response to some of the improvement in the tonnage of the volume environment. Is that just normal contract renewals, or do you have the opportunity to maybe reprice some freight in the market as tonnage is coming back?
Judy McReynolds (Chairman, President and CEO)
Well, Todd, you know, the additional component there is just our tariff-based business, that, you know, would... You would consider whenever you're thinking about us, kind of holistically there on that core account, LTL pricing. And so, what you typically think of with contract and deferred pricing arrangements, is those are larger, more price-sensitive accounts. And, you know, those are good, solid increase levels, I think. And, to see that during this period, is especially good. And so I think you have to take all those pieces together, to get to the overall result we get. And then, you know, as you know, that high single-digit comment factors out the transactional and spot-related,
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
Mm-hmm.
Judy McReynolds (Chairman, President and CEO)
Type shipments that we attracted. And those, just so to follow that thought is, you know, we're making those decisions based on the capacity that we have, and we're looking at those on a incremental profitability basis and making sure that those improve our situation as we're making, you know, those pricing commitments. I hope that helps.
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
It does. No, and I understand all of that. And then just to follow up on kind of the pricing opportunity in the third quarter, is that just normal contract renewals and the timing of those renewals coming through, or is that some additional, you know, pricing opportunity as tonnage is coming back?
Judy McReynolds (Chairman, President and CEO)
...Well, it really, I think it's kind of, it's business as usual with one caveat. And, you know, that would be that, you know, we have seen a little bit of delay in the finalization of some of our contracts and deferred pricing renewals, just because of how displaced, so to speak, some of our customer contacts are as we go through this. And so we're not seeing anything, you know, overly troubling there, but we do see some delay. But, you know, we have contract renewals every month, and so we're going through the normal process there, as we would. You know, in the third quarter, there's no different activity, I don't think, than you would see in the first half of the year.
You know, we aren't taking any specific pricing action as the tonnage comes back, but just addressing our account by account level, as we typically would. You know, I think that you're looking at the profitability of the account, making adjustments based on that, and having those conversations as you normally would, to the extent you have that customer contact available.
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
Got it. Okay, that's super helpful. And then just to follow up, do you care to comment on what the monthly OR trend was during the quarter? I mean, obviously, we're seeing the quarter average. We know that it was a very volatile quarter, different trends in April versus where you were in June. And I'm just trying to, I'm curious where you ended up in June and maybe just kind of a rough directional number, if it's not exact, to give us a idea of where you exited the quarter versus where you started it.
Judy McReynolds (Chairman, President and CEO)
Well, I'm not going to give you the specific numbers or anything, but I will say, I mean, you could observe this by the different 8-K disclosures that we did throughout the quarter. April was a rough month. It, you know, it really did not contribute much in terms of operating profit to the quarter. And certainly June was, you know, much a much greater contributor to the quarter's profit. And we were encouraged by that. And, you know, so I think you see or hear some commentary from us about momentum. You know, we feel like the momentum as we ended the quarter was certainly improved, you know, from where we were when we released our first quarter results. And so I hope that helps you.
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
Yeah. No, that makes sense, and that's kind of what I figured and was hoping to maybe get a little bit more granular, but I understand maybe not wanting to get to that level of detail, so.
David Cobb (VP and CFO)
Good try. Good try.
Judy McReynolds (Chairman, President and CEO)
Yeah.
David Cobb (VP and CFO)
Yeah.
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
All right. I'll turn it over.
Hi, Todd. Appreciate you guys.
Judy McReynolds (Chairman, President and CEO)
Thank you.
Todd Fowler (Managing Director of Transportation and Logistics Equity Research)
Okay, thanks.
Judy McReynolds (Chairman, President and CEO)
Bye.
David Cobb (VP and CFO)
Thank you.
Operator (participant)
Our next question comes from the line of, Jack Atkins, with Stephens Inc. Please proceed.
Jack Atkins (Research Analyst)
Good morning, David and David.
David Cobb (VP and CFO)
Good morning, Jack.
Jack Atkins (Research Analyst)
Thanks for taking my questions here. So I guess, you know, we're hearing quite a bit about e-commerce, and there's obviously been a shift in sort of consumer purchasing behavior, and the freight markets, I think, are reflecting that. Yeah, you know, is there any way to kind of think about the opportunity that, you know, you see in front of you guys from e-commerce, whether it's in the shorter term or longer term, as just more B2C activity looks like it's here to stay? Is there any way to kind of think about the opportunity that can provide an LTL network like yours as we look out over the next, you know, couple of years?
Judy McReynolds (Chairman, President and CEO)
Well, I mean, it's certainly a good opportunity, Jack, and I think that it's illustrated by what's been happening. You know, we had a tremendous amount of growth in first quarter, even before the pandemic started, so that tells you something right there. You know, I think our residential delivery shipments related to e-commerce in the first quarter were up 12%. And in second quarter, they were up 35%. And so, you know, it really accelerated, but I think it's important to look back at that first quarter data point, because that was a good level of growth before the pandemic. And, you know, I think this whole stay-at-home, you know, change that's occurred with people has really contributed to greater comfort with having those kinds of transactions.
You know, these larger type items, whether it's the ones that I mentioned, exercise equipment or storage sheds, or if it's, you know, outdoor furniture or it's you know, bigger items like televisions and other inside the house items. I think just because of the need to do it, I think more people are doing it, and they're more comfortable with it. And one of the things that's been a great, I think, advantage for us that we've encountered, is that we've been in this business for a long, long time. I mean, our U-Pack business was started in 1997.
So all the way back then, you know, we had to get comfortable with going into neighborhoods, the requirements of delivering to a home and what that meant to our city routes and the requirements for our city drivers, you know, as they were encountering that type of environment. And so, you know, I think that what that helps is just the customer service side, to deliver great service, but it also helps you understand your costs and the timing and that sort of thing, which, you know, as we've seen this big increase, that's helpful to us. And I think David mentioned this earlier, there have been some advantages, which some of these we hope would continue, and that is just the comfort level, to extend appointment windows by some of the shippers that are shipping goods to the home.
You know, we've seen that because of the pandemic, the desire to have in-house delivery of these things is not as high as it was. And so we've, you know, done more curbside or threshold-type deliveries, which is better for productivity for us. And then the lesser amount of traffic has also helped some of these things. So, you know, if I know some of those are not going to continue, but, you know, we're hopeful that, you know, our shipper customers that we're experiencing see some of the benefits of this, too, and would continue, which I think would allow us to do more and do it more effectively.
Jack Atkins (Research Analyst)
Okay, that's, that's great.
David Cobb (VP and CFO)
Can I just add?
Jack Atkins (Research Analyst)
Yeah. I'm sorry, Dave, go ahead.
David Cobb (VP and CFO)
Yeah, I'm just gonna add a couple things there. Just thoughts around, you know, obviously, the pandemic accelerated the trend of increase in e-commerce in sales. But when you think about the expanded line of products that are being handled by e-commerce, you know, LTL really works well to provide the flexibility that these vendor shipments to either retail fulfillment centers or distribution centers. And I know you were asking about B2C to consumers, but it's just - it's also helping us there, we think. And so LTL in general, but when you think about the ABF brand and the value that we bring and the service component to that, you know, that's really valued and as customer expectations kind of increase over time.
And so getting those service requirements met, you know, Retail+ program is part of that as well. All that kind of adds to the benefit, I guess, of LTL and ABF branded LTL. But at the same time, our Asset-Light operations benefit from this e-commerce trend. I mean, we don't get inside of that. I mean, we think about just the sourcing of product for one, and how that sourcing is maybe being changed, whether it's near-shoring or even, you know, into the US, that's one aspect. And so supply chains are changing, I guess, just to shortcut that.
And so we're able to help with, particularly around our managed solutions, and you saw that with our managed solutions growth in the quarter, and it has been growing. There's just that need for customers' assistance on developing supply chains and designing, optimizing those. And so we're there to help them with that. And then our services from international on our Asset-Light side to, you know, full load brokerage or expedited services, all that is there to help this continuing e-commerce trend, I think.
Jack Atkins (Research Analyst)
Okay, that's great.
David Cobb (VP and CFO)
Thanks, Jack.
Jack Atkins (Research Analyst)
Thanks so much for the time, guys.
David Cobb (VP and CFO)
Thanks a lot.
Judy McReynolds (Chairman, President and CEO)
Thank you.
Jack Atkins (Research Analyst)
Appreciate it.
Judy McReynolds (Chairman, President and CEO)
Thank you.
Operator (participant)
Our next question comes from Scott Group with Wolfe Research. Please proceed.
Judy McReynolds (Chairman, President and CEO)
Good morning, Scott.
David Cobb (VP and CFO)
Good morning.
Rob Salmon (SVP)
Hey, good morning, guys. It's Rob on for Scott this morning.
Judy McReynolds (Chairman, President and CEO)
Oh, hi, Rob.
Rob Salmon (SVP)
Hey, Judy, just to kind of follow up in terms of the Asset-Based OR. We saw the exiting kind of at a much stronger profitability spot in June than probably historically we ever have. You guys have called out for the Asset-Based segment, you know, we're back into roughly 190-260 basis points of sequential incremental headwinds. Can you speak a little bit more in terms of should we be expecting if normal seasonality plays out over the next kind of couple months, should we be expecting kind of sequential margin improvement? Can margins be flat, or do we have to go backwards because of the incremental costs which are coming on?
Judy McReynolds (Chairman, President and CEO)
Well, we feel like that, you know, what we experienced in the second quarter really shows you the alignment, you know, that we're able to manage our costs, you know, to the business level. You know, that is certainly our intention as we move forward. You know, obviously the July results as they relate to, you know, what we experienced in the second quarter, but also with June, you know, we're seeing some growth there. There's, you know, again, David went through, you know, some of the details and I did as well on the yield side, but we're not seeing, you know, a kind of concerning change or anything there.
And I think, you know, some of the technology enhancements that David mentioned are gonna continue, and I think the visibility that we have of our costs and, you know, and ways to help ourselves with those costs, which the transactional LTL shipments and other things that we've done to try to improve the utilization will continue if they need to. And, you know, what I think we have going forward is an ability to serve our core account LTL customers more because we're seeing their businesses reopen.
You know, the one thing that I would mention, though, in addition to all of that, is I think in the second quarter, you know, what you had, especially at the beginning, was an opportunity to really adjust costs because you know you had the knowledge, you know, that a lot of businesses were shut down. As we're coming into the rest of the year, I even have in front of me a map that shows just the lumpiness of the restarts of all of our customers. That's difficult to manage. You know, I think that making sure that we're serving our customers well, even as uneven as that is, is something to consider as you think about the next months... and as we close out 2020, it's not perfect.
This is a difficult business on a regular day, you know, but, you know, you start adding some of those elements into it, it becomes, you know, even more of a challenge. But what I'd say, and we've done a lot of looking at this, you know, back to 10 years ago, the Great Recession, or even, you know, other periods where we've had these downturns. Our visibility into the cost levers in the business, our ability to use linehaul optimization, you know, light lane notifications, a mobile app to better manage the activities of our city routes and make us aware, you know, of any issues, holding our people accountable, you know, to the standards that we need to.
You know, those kinds of changes in the business have really been encouraging and I think very helpful and allowed us to gain the result that we did in the second quarter. Some of the cost actions that we took, we stated that those were, you know, temporary, and to address what we weren't really sure was the situation that we were gonna be dealing with. I mean, we had concerns not only of the business drop, but also of, you know, some of the customer collections and those kinds of things, and we're really past that now.
We appreciate that we are, and you know, restoring those is really the right thing to do given, you know, the momentum in the business, and so we're pleased to be able to do that.
Rob Salmon (SVP)
Okay, and I guess, quick following up, in terms of the July update for the tonnage per day or the shipments per day up 4% and 3% sequentially, how does that compare to normal seasonality versus June levels for ABF Freight?
Judy McReynolds (Chairman, President and CEO)
It's much better than normal, much better. It's on the high, high end of the, you know, kind of the best ever.
Rob Salmon (SVP)
All right, appreciate it. I'll hop back with you.
David Humphrey (VP of Investor Relations)
Rob, I think we're gonna move along. Thanks.
Operator (participant)
Our next question comes from David Ross with Stifel. Please proceed.
Matthew Milask (Associate Equity Analyst)
Hey, good morning. This is Matt on for Dave. Thanks for taking the questions.
Judy McReynolds (Chairman, President and CEO)
Hi, Matt, how are you?
David Cobb (VP and CFO)
Good morning.
Matthew Milask (Associate Equity Analyst)
Good. Wanted to get a bit more color on what you're hearing directly from customers regarding their plans, you know, heading into August, you know, the rest of the summer. And then, I guess, specifically, provide a little bit more detail around how much auto shutdown very impacted results in the quarter on the Asset-Light side and sort of how we should think about that, going forward. Thanks.
Judy McReynolds (Chairman, President and CEO)
Okay. Well, you know, customers, we're overall, we've remained really, I'd say, cautiously optimistic about the momentum that we're currently seeing with our account base. You know, customers and states are really reopening, which is helping our business volumes. You know, our sales team has really been able to continue to engage with customers despite this remote work, which is really encouraging and, you know, we're able to use our technology stack and our resources and ability to be able to do that. And, you know, so we feel pretty good about that. Many of our large accounts are asking us to help bring some stability to their supply chain in this uncertain environment. David mentioned that, and it's a great opportunity for us to position the integrated solutions that we have or even managed solutions.
Our pipeline is strong. We're seeing more and more of our customers, you know, looking to us because of the multiple and again, integrated solutions that we have. We've seen, you know, as you mentioned, our expedite business levels pick up and, you know, that's a pretty sizable component within the Asset-Light segment of the utilization of our straight trucks and our cargo vans in that business, and that's good. It's, you know, on the expedite business, it's somewhat less than it used to be because of the work that they do with, you know, other manufacturers or high-value products and in the life sciences vertical.
But, you know, if you combine auto and manufacturing, other manufacturing and that together is, I don't know, you know, somewhere between 30% and 50% of the total, you know, that you have there. Maybe a little bit more when you look at the work that we do with 3PLs, because that's auto influenced as well. And so we're encouraged that the auto plants are coming back online. We're seeing that have a positive impact, as indicated by the information that we have in our 8-K. And, you know, I think, that's something that was weak even in 2019 and as we started the year. So if we can see some normalization there, you know, it will help our Asset-Light results.
And then, you know, with the disruption in supply chains, the work that we do in that division is really helpful in certain instances, and our customers, they know us to rely on us for that, and I think that is something that's a benefit as we go forward until things settle out.
Matthew Milask (Associate Equity Analyst)
Excellent. Thank you.
Judy McReynolds (Chairman, President and CEO)
Thanks.
David Humphrey (VP of Investor Relations)
Thanks a lot, Matt.
Operator (participant)
Our next question comes from Jeff Kauffman with Loop Capital Markets. Please proceed.
Jeff Kauffman (Managing Director of Equity Research)
Thank you very much. Congratulations.
David Cobb (VP and CFO)
... Hi, Jeff. Good morning, Jeff.
Jeff Kauffman (Managing Director of Equity Research)
Different question. I was looking at the cash flow statement, and I know you're buying some equipment, but it looks like you've only spent about $10 million on CapEx on the cash flow statement year to date. What are your thoughts on capital spending for the remainder of this year and maybe kind of reaching out to next year? And how should we be thinking about CapEx spending?
David Cobb (VP and CFO)
Yes. So, keep in mind, when you look at our cash flow statement, that, we do finance some of our capital spending with equipment notes. And so if you look at the bottom of our cash flow statement, you'll see, equipment financed with notes essentially. And so that would be our total, you'd want to add that. We can talk offline about the numbers there.
David Humphrey (VP of Investor Relations)
Yeah, it's about another $14 million, Jeff.
David Cobb (VP and CFO)
Okay. Thank you, David. But as we mentioned in our Supplemental or in the exhibit document too, that our CapEx range is expected to be $95 million-$100 million for the year for 2020.
Jeff Kauffman (Managing Director of Equity Research)
Okay.
David Cobb (VP and CFO)
I'm sorry, did you have a question?
Jeff Kauffman (Managing Director of Equity Research)
That's unchanged from where you were before then, basically?
David Cobb (VP and CFO)
Yeah, we've narrowed the range a tad.
Jeff Kauffman (Managing Director of Equity Research)
All right. And can you talk about what you're seeing on the real estate market? Are you... With a lot of the distressed carriers out there, are there any attractive properties that are making sense to you? And can you talk maybe a little bit about how shipper supply chains have been moving around through this whole COVID crisis? And is that making you rethink, you know, geographically, where you might want to be located?
David Cobb (VP and CFO)
Well, we're part of our process, we are constantly reviewing kind of where our business is, and so that's, that is an ongoing evaluation. We've got a solid real estate department, and so I think that, that bodes well for us. So we're evaluating properties on a constant basis and including, you know, maybe exchanging properties that we have, selling, in other words, that happens from time to time. And as you may have noticed, we did have a gain on a property sale this quarter. And so that happens, you know, as we move our businesses around to accommodate where our customers' centers are.
And so, yes, I mean, I think e-commerce trend is probably driving a bit of warehouse need as, you know, as inventory levels may be elevated from where they've been historically, just to accommodate the kind of the e-commerce trend and just more real time for customers as their expectations for deliveries have increased. I think there's some pressure on kind of that warehouse type space. That's kind of the take that I've seen on it. You know, so my read is, you know, maybe somewhat a little bit different than what you see in the news, but it's probably similar, so.
David Humphrey (VP of Investor Relations)
Okay, Jeff, we're going to move along. We got a couple more we want to try to get in before the top of the hour, but I appreciate you jumping in with us.
Jeff Kauffman (Managing Director of Equity Research)
Thank you.
David Cobb (VP and CFO)
Thanks, Jeff.
Operator (participant)
Our next question comes from Stephanie Benjamin with SunTrust Robinson Humphrey. Please proceed.
Judy McReynolds (Chairman, President and CEO)
Good morning, Stephanie.
Stephanie Benjamin (Analyst)
Hi, good morning.
David Cobb (VP and CFO)
Good morning.
Stephanie Benjamin (Analyst)
I wanted to touch on your strategy to bring in, you know, transactional truckload or LTL business. Obviously, it's been very helpful with improving some efficiencies, you know, during the quarter, particularly with some of the lower volumes. Do you have any kind of planned change of that strategy as we look forward, maybe as the traditional LTL business, some of those volumes start to improve? Any color there would be helpful. Thanks.
Judy McReynolds (Chairman, President and CEO)
Yeah, well, Stephanie, you know, the interesting thing about that strategy is that it is nimble and flexible with whatever's going on at the time. And certainly we favor our core LTL accounts in terms of being sure that we're servicing them or making, you know, our services available to them. But, you know, this strategy that we have been using is really designed to meet the customer where they are. What it allows us to do, these were opportunities that we were getting before, and we're just better equipped to take advantage of those in the right instances. And I mentioned the visibility of a cost opportunity to make more efficient in the Asset-Based operation.
What I would say is that that is going to be adjustable, depending on the circumstance, you know, for that day or that week. You know, I think our team has really come together. I think our yield strategy team is working well with the operations team and making sure that we make more efficient the resources that we're deploying. But again, it's a good customer experience because it's meeting the customer where they are. It's a quote that they were already involved with, and we're just able to meet their expectations and then also target that where we need it to make more efficient the network.
Stephanie Benjamin (Analyst)
Got it. I appreciate the time. I'll leave it at that. Thank you.
Judy McReynolds (Chairman, President and CEO)
Thank you, Stephanie.
David Cobb (VP and CFO)
Thanks, Stephanie.
Operator (participant)
Our next question comes from Sanjay Ramaswamy with BofA. Please proceed.
Judy McReynolds (Chairman, President and CEO)
Good morning, Sanjay.
Sanjay Ramaswamy (Equity Research Associate)
Hey, guys. Hey, thanks for taking my question. Maybe just talking, I think in your prepared remarks, Judy, you mentioned...
... the color, some color on how you've been utilizing some lane-specific data to fill with truckload-rated shipments. And, you know, given the cyclical inflection in truckload spot rates, can you just kind of provide a little bit more color on how you expect that to continue, maybe the duration of that, given a more rational, you know, LTL pricing environment?
Judy McReynolds (Chairman, President and CEO)
Well, actually, you know, I think that was similar to what the question that I just answered for Stephanie. But, you know, again, we're very focused on utilizing that, you know, to meet the needs of both our network and the customers. And, you know, I think that what you've seen from the core account LTL customers that we have, we have good increases. So, you know, the combination of that, I think, worked very well in the second quarter. We're seeing that work well in the month of July, where we've seen some strengthening. And, you know, I think just keeping those activities synchronized, so to speak, is really the best advantage that we can have, and we intend to continue to do that.
You know, based on the needs that we have in the network, and then again, meeting the customer need, as we go forward.
Sanjay Ramaswamy (Equity Research Associate)
Okay, great. Now, that's it for me. Thanks.
Judy McReynolds (Chairman, President and CEO)
Thank you.
David Humphrey (VP of Investor Relations)
Okay, I think we've got time for one more. I think it's a follow-up question. Frank, can you, can you queue that one up?
Operator (participant)
We have a follow-up from the line of Scott Group, Wolfe Research. Please proceed.
Rob Salmon (SVP)
Hey, guys. Thanks again for the follow-up. With regard to Panther and kind of the Asset-Light segments, as we think about kind of overall truckload rate inflation, should we think in aggregate about the Asset-Light segment benefiting or hurting from kind of higher truckload rates and, and obviously, an offset in terms of purchased transportation on a go-forward basis for earnings?
Judy McReynolds (Chairman, President and CEO)
Well, that's an interesting question. You know, Rob, I think, I think it depends, is what I'd say.
Rob Salmon (SVP)
It does, yep.
Judy McReynolds (Chairman, President and CEO)
Because we have seen, I mean, just this week, some, you know, areas of the country that are very tight. And I think you have to... we have to navigate around those and do a good job with that to make sure that they're not deteriorating that net revenue, you know, that we desire to grow. But I do think that, as with a tight capacity environment or tighter capacity environment as we go through the rest of the year, you know, that will become more recognized by customers and strengthen our ability. And a lot of situations where expedite is involved are designed that way anyway, in terms of the way that that works with the customer, contract or the relationship.
So, you know, we would expect that if capacity is tighter, that over time that would be beneficial, you know, to net revenue growth for us. David, did you have anything you wanted to add?
David Cobb (VP and CFO)
No, I would agree with that. I just to your point, and I think that's probably where you're going, Rob, is just periods of time, you may have a tightening of the, you know, a tightening of the net revenue margins and then expanding. And so as the cycle moves, and as Judy pointed out, I think it's about the customer recognition of the market environment that you're playing in to, in order to get the spread.
Judy McReynolds (Chairman, President and CEO)
Yeah, that-
Rob Salmon (SVP)
Appreciate it.
Judy McReynolds (Chairman, President and CEO)
That's what's been more difficult, I think, to attain, is the customer side of that.
David Cobb (VP and CFO)
Yeah.
Judy McReynolds (Chairman, President and CEO)
Yeah.
David Humphrey (VP of Investor Relations)
Okay. Well, I think that concludes our call. We thank you for joining us this morning. We appreciate your interest in ArcBest. So that concludes our call. Thanks a lot.
Operator (participant)
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.