ArcBest - Q3 2020
November 3, 2020
Transcript
Operator (participant)
Good evening, and welcome to the ArcBest Q3 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session, and after time, if you have a question, you can press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, you can press star 0. And as a reminder, this conference is being recorded Tuesday, November 3, 2020. I'd now like to turn it over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead.
David Humphrey (VP of Investor Relations)
Welcome to the ArcBest Q3 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.
We will now begin with Judy.
Judy McReynolds (Chairman, President, and CEO)
Good morning, everyone, and thank you for joining us for our Q3 earnings report. At ArcBest, you will hear us talk about our vision, "We'll find a way," and that appropriately describes what this year has been like for us and what our employees are seeking to accomplish. I'm incredibly proud of our team for fighting through a pandemic, weathering the associated recession, and being ready to respond to increased demand as our customers' businesses quickly come back online. 2020 is an extremely unique year, and the challenges everyone faced going through the first half of the year sit in contrast to what has played out over the last few months. 2020 is also filled with good examples of customers utilizing our integrated solutions to their advantage.
Our transformation into a provider of choice and a leader in the logistics industry is purposeful and also responsive to the complexities faced by our customers. An indication of our effectiveness in serving customer needs is our Q3 and October sequential revenue trends, which are some of the best in our history. We closed out the Q3 with 32% of our revenues from Asset-Light Solutions, and on a preliminary basis in October, that percentage further improved to 34%. Our October progress is even more encouraging when you consider that our Asset-Based business is growing at 9%. We are proud to serve our customers always, but especially during these volatile times.
In addition to improving revenue trends, we are encouraged that our Q3 consolidated non-GAAP operating income increased 20% year-over-year and 82% sequentially and represents one of the best Q3 performances in our history. The solid execution by our employees is enabled by a number of technology and analytics advancements that increased operational efficiencies and improved responsiveness to customers and carriers in the channels they desire. David and I are looking forward to going through the Q3 results in more detail with you today. During the Q3, our Asset-Based segment benefited from sequentially improving economic trends and the resulting positive impact on our customers' businesses. Many of them are returning to more normal shipping patterns, and during the recent quarter, we were able to effectively serve their needs.
Although average daily shipments in the ABF network increased sequentially, they decreased versus last year's Q3. On a year-over-year basis, our higher weight per shipment was driven by several factors, including the improving economy, changes in customer mix, the addition of larger LTL shipments designed to fill available empty capacity in our system, and increased demand for our household goods moving service. At this time, we are not seeing an impact from traditional truckload shipments spilling over into our LTL network as these truckload shipments declined on a year-over-year basis. As we experienced during the most severe period of the pandemic, our e-commerce business was strong in the Q3 compared to the previous year, as consumers continue to purchase a variety of products that they receive and use in their homes.
Strengthening trends in housing were another positive factor that generated both year-over-year and sequential quarterly increases for U-Pack, our consumer residential moving service. The pricing environment remained solid and rational during the recent quarter. Though our total Q3 Asset-Based revenue per hundredweight was below the prior year, the decrease was related to shipment and account mix changes and lower fuel surcharge. The increase in shipment size I mentioned earlier was also a factor in reducing our total yield metric, but that was offset by the positive effects of an increase in average revenue per shipment. Our traditional pricing discipline, combined with our evolving use of lane-specific information that helps in adding needed shipments in the right place at the right time, forms a solid foundation for our Asset-Based business that we lean on, especially during uncertain times like we've experienced this year.
Our operations team has executed extremely well during a period when we have managed through an entire freight cycle in a matter of only six months. The resulting ups and downs of trying to match labor resources to business levels during such extreme swings in shipment counts has certainly presented its challenges. We had to quickly reduce labor resources in the Q2 and then rapidly increase them as business returned in the Q3. I am very proud of how well we've maintained year-over-year improvements in most all of the important operational metrics and measures that we closely follow. As customer business levels began to return and the need for transportation services increased during a period of tight carrier capacity in the marketplace, demand for our Asset-Light services contributed to revenue growth and higher operating income.
Despite a slight decrease in total average daily shipments during the quarter, greater revenue per shipment, highlighted by increases at Expedite, Truckload, and Manage, drove the top line revenue growth. Because of market conditions, purchase transportation costs were a higher percentage of revenue, thus pressuring margins. However, efficient cost controls, enabled by technology advancement in all other areas of the business, resulted in an increase in operating profit. Ground Expedite benefited from higher demand associated with our customers' need for reliable, timely transportation services, and from the environment created by challenges they experienced in securing the equipment capacity they must have. Our truckload brokerage was also a positive part of the Q3 revenue growth, but the challenge of matching customer charges with rapidly increasing mileage rates for carrier capacity pressured truckload margins.
As many of our customers are emerging from the worst of the pandemic's impact on their businesses, we continue to have opportunities to help them navigate the changing trends in their supply chain and in their need to service their customers in unique ways. As a result, growth in Managed Transportation Services was another positive contributor to Asset-Light revenue and profit improvements in the recent quarter. The year-over-year revenue growth in our Managed business so far this year is significant and is on top of the strong growth we experienced in this area last year. At FleetNet, a reduction in both roadside repair and preventative maintenance events, primarily resulting from lower demand, contributed to reduced Q3 revenue compared to last year. Reduced event count also contributed to lower operating income during the quarter.
Next, I would like to ask David Cobb to go over the earnings results and operating statistics.
David Cobb (CFO)
Thank you, Judy, and good morning, everyone. Let me begin with some consolidated information. Q3 2020 consolidated revenues were $795 million, compared to $788 million in last year's Q3, which was flat on a per-day basis. On a GAAP basis, we had Q3 2020 net income of $1.11 per diluted share. This compares to $0.62 per share last year. As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release, our adjusted Q3 2020 net income was $1.22 per diluted share, compared to $1.02 per share in the same period last year.
ArcBest's Q3 2020 effective GAAP tax rate was 24.9%, and on a non-GAAP basis, the effective tax rate was 26.2%. We currently expect our full year 2020 GAAP tax rate to be approximately 25%, while the effective rate in the Q4 may be impacted by items discrete to that period. Full details of our GAAP cash flow for the Q3 are included in our earnings press release. At the end of September, our cash and short-term investments balance totaled $351 million. Our total liquidity, including our cash and borrowing availability under existing facilities, was $644 million. Our financial covenant ratios under our credit facilities improved during the quarter and continue to be in a solid position.
You'll recall that in March, as a proactive measure to increase our cash position and to preserve financial flexibility at the beginning of the pandemic, we borrowed an additional $225 million that consisted of $180 million from our credit revolver facility and $45 million from our accounts receivable securitization facility. In July, we repaid the $45 million borrowed under the AR securitization, and in August, we paid back the $180 million on the credit facility. In late September, we paid an additional $40 million that eliminated all of our borrowings under the AR securitization.
As a result of these actions, our total debt at the end of the Q3 2020 was $292 million, which included $70 million on our credit revolver, no borrowings on our AR securitization, and $222 million of notes payable, primarily on equipment for our Asset-Based operation. The composite interest rate on all of our debt was 2.9%. Combined with our cash balances, we ended the Q3 with net cash of $59 million, compared to net cash of $41 million at the end of the Q2, an improvement of $18 million. We made treasury stock purchases during the Q3 and have repurchased over $5.5 million of our stock so far this year. These purchases, combined with our quarterly dividend, enhance our shareholder returns.
Our Asset-Based Q3 revenue was $562 million, compared to $566 million last year, a per-day decrease of 1%. Asset-based quarterly total tonnage per day increased 1.2% over last year's Q3. By month for Q3, Asset-Based daily total tonnage versus the same period last year decreased by 3.9% in July, increased by 3.7% in August, and increased 4.5% in September. Total shipments per day in the Q3 decreased by 3% compared to last year's Q3. Q3 total billed revenue per hundredweight on Asset-Based shipments decreased 1.8% compared to last year, and was impacted by freight mix changes and lower fuel surcharges.
Excluding fuel surcharge, the percentage decrease of billed revenue per hundredweight on Asset-Based LTL rated freight was in the low single digits. On Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter, the average increase was 2.5%. Pricing on traditional published LTL rated business, excluding fuel surcharges, and this, this piece that does not include transactional LTL rated shipments, increased by a percentage in the mid-single digits. On an adjusted basis, our Asset-Based Q3 operating ratio was 92.4%, an 80 basis point improvement versus the 93.2% in 2019's Q3, and a 200 basis point sequential improvement compared to this year's Q2, outpacing historical sequential operating ratio trends on the significant revenue growth versus Q2.
Earlier this year, in response to a rapid decrease in business levels related to the pandemic, we took decisive actions to reduce costs that included laying off many of our driver and freight handling personnel throughout the ABF Freight network. As we moved past the worst of the business declines that occurred in April, we began experiencing rapid sequential monthly business increases, especially during the May through August time period. As a result, we have undergone overall staffing challenges in the Asset-Based network, particularly in certain specific locations. During the Q3, in order to maintain customer service levels, we needed to increase our use of outside resources in both line haul and local city pickup and delivery operations, thus increasing purchase transportation expenses.
Though we continue to be challenged adding needed resources in some specific locations, we have generally seen success in hiring the people we need. Moving forward, we would expect that customer business levels and our employee resources will continue to stabilize relative to each other, and that our use of purchase transportation will moderate accordingly. For October, preliminary Asset-Based statistics versus last year are as follows: Asset-based billed revenue per day increased 9%. Total tonnage per day increased 10%. Total shipments per day increased 1%, and total billed revenue per hundredweight decreased approximately 1%, again, impacted by lower fuel surcharges and freight mix changes, including the effect of heavier shipments.
Excluding fuel surcharge, pricing on traditional published LTL rated business, which does not include transactional LTL rated shipments, increased in October 2020 by a percentage in the low single digits compared to October 2019. While total weight per shipment is up 9% in October, reflecting strong demand for our household goods moving business, our LTL rated weight per shipment increased 11%. This reflects strategic conditions of heavier LTL shipments in certain lanes. The profile change is driving a lower revenue per hundred weight metric in the midst of a rational pricing environment. In recent years, the historical average sequential change in ArcBest Asset-Based operating ratio in the Q4 versus the Q3 has been an increase of approximately 200 basis points.
In total, our daily revenue in our combined Asset-Light businesses increased 5% versus last year's Q3, reflecting a revenue increase in the ArcBest segment and lower revenue at FleetNet. The total Asset-Light business operating income was $5.8 million in the Q3, compared to operating income of $3.6 million last year, with increase primarily due to increased total business levels, particularly in our expedite business. In addition, operations were more efficient, benefiting from cost controls and use of data and technology. For October, Asset-Light revenue for the ArcBest segment, excluding FleetNet, is 31% higher on a preliminary basis compared to the prior year month of October, driven by high demand for our ground expedite and truckload brokerage services, resulting from tight equipment availability in the current market.
So far in the month, purchase transportation expense is a greater percent of total revenue in the Asset-Light business, which will result in overall margin compression for the month when compared to October a year ago. Regarding our consolidated results, the year-over-year comparison of consolidated operating income was impacted by expense accruals for certain non-union, performance-based incentive plans, which were higher by $8.5 million compared to the prior year quarter. The increase is due to improved results, but primarily reflects the timing of recognition, as the first half of the year was impacted by the COVID-19 pandemic on operating results. Because of the strong Q3 results, more incentive costs were appropriately recognized during the Q3 of this year compared to historical patterns.
We attribute our success during 2020 to the dedication and adaptability of our workforce and the ArcBest culture that unites our people behind a shared set of values. We recognize the sacrifices our employees have made during 2020, both personally and financially, to serve our customers through the pandemic and find a way to solve their changing needs. We have continued to reevaluate our cost savings actions related to the pandemic as the economic recovery has progressed and our financial results have become more certain. This morning, we announced that ArcBest will be providing one-time discretionary payments to non-union personnel with a 15% wage reduction incurred by our non-union exempt employees during the Q2 of 2020, and to provide a bonus to non-union hourly employees whose hours were reduced during the same time period.
We recognized $7 million of expense in the Q3, while $4 million will be accrued in the Q4 for these payments. This morning, we filed a Form 8-K that included our Q3 2020 earnings release, along with an exhibit that provided some additional information about our current quarterly financial results, along with our recent business levels and our future expectations on certain financial metrics. Now I'll turn it over to Judy for some closing comments.
Judy McReynolds (Chairman, President, and CEO)
Thank you, David. What a difference six months has made! As people all over the country make their ways to the polls today, I can't help but think about what it means to cast a vote and what an honor it is to be the recipient of one. In a very similar way, shippers and capacity providers do the same thing when they choose to do business with ArcBest. They choose ArcBest because they know they are going to get a good customer experience that includes solutions for all their logistics needs. Regardless of how unique a shipper situation may be, we have access to the right capacity and the will to find a way to get their goods moved wherever they need to be and when they need to be there.
The same can be said for our capacity providers, who trust us to match them with the loads they want when they want them. This focus on doing what is best for our customers is part of our customer obsession, and it is ingrained in the culture we have built here at ArcBest. It is also a driving reason behind why I am so optimistic about what the future holds for this company. Tremendous opportunity exists for us to sustain the momentum of the Q3 and continue to profitably grow our company by deepening our customer relationships, utilizing data and technology in our operations, and integrating innovative solutions in our services. It is the strength and abilities of our workforce and our leadership team that will seize upon this opportunity for growth as we head into 2021.
Now I'll turn it over to David Humphrey to conduct our question-and-answer session.
David Humphrey (VP of Investor Relations)
Okay, Keith, I think we're ready for some questions.
Operator (participant)
All right. If you'd like to register for a question, you can press the one followed by the four on your telephone. You'll hear a three-tone prompt to acknowledge your request. If your question gets answered, you wish to withdraw, you can press one three. And again, that's one four to queue up. Our first question is from the line of Jordan Alliger from Goldman Sachs. Please go ahead.
Jordan Alliger (Equity Research Analyst)
Yeah, hi, morning, everyone.
Judy McReynolds (Chairman, President, and CEO)
Good morning, Jordan.
David Cobb (CFO)
Hi, Jordan.
Jordan Alliger (Equity Research Analyst)
Really good job on the morning. On the cost side of the equation, I'm just wondering if you could talk a little bit about some of the sustainability controls. I know you have to bring back people, but sort of exclusive of that. And as you look ahead to 2021 and the operating ratio, one assumes that the bulk of the industrial manufacturing recovery, you know, still lies ahead. You know, how do you think about margin progression as we look into next year? Or maybe said another way, you know, can we improve upon what you've already done thus far this year?
Judy McReynolds (Chairman, President, and CEO)
Well, Jordan, thanks for the question. You know, we certainly always strive to improve upon what we're currently doing, and I think, you know, the thing that has been really interesting to watch as we've seen this year unfold is just the flexibility and adaptability of our employees and, you know, just the resources that we provide to customer needs in different environments. So, you know, that's particularly encouraging when you think about what next year holds, because we don't always know what that will be, and that's something that we constantly talk about at the company, just how difficult it is sometimes to know, you know, where things are headed to. But, you know, you commented about what's going on in the manufacturing sector, and we are encouraged by that.
I think yesterday's manufacturing PMI index was a positive, and typically, you know, when we look out four to five months, that's impacting our results, and that's encouraging. And then also, you know, we've commented on this call about the positives that come with the housing environment improving. And, you know, we are seeing sequentially some good trends on the retail side, although I know, you know, there's gonna be some difficulty with some businesses there. But, you know, the e-commerce trends we're seeing are good as well.
And so, you know, we've got all that backdrop going on, and at the same time, I think within the business, you know, we're seeing more opportunity for greater visibility of, you know, just the units of work that our employees are doing and how to better manage that or optimize that. And then the coordination that we see of the needs in the Asset-Based network or with our carrier partners, to be able to match that up with the business that we have opportunities for with customers is really at a heightened level, and I'm encouraged by that as well. So, you know, we're constantly working to try to improve, and we see a lot of opportunity to use the foundation that we've laid here to do that as we move forward into the next several months.
Jordan Alliger (Equity Research Analyst)
Thanks. Just, just one real quick follow-up. The October strength in tonnage year-over-year, obviously very strong. Typically, though, as we go forward from here, I mean, November, December, I mean, I know this is not a normal year, so I'm just trying to get a sense for how to think about maybe a progression, or is this a typical or atypical progression tonnage from here, November and December?
Judy McReynolds (Chairman, President, and CEO)
Well, I'll take the first part, and then, David, I think, will have something to add. I mean, you know, the October, when you compare that to September. You know, the trends there for, I think, revenue, shipments, and tonnage are maybe the best we've had in a long time and maybe ever. And you know, it's just a really, I think, interesting environment with certain areas strengthening. And again, some of that is because of the decline that you had in the Q2, you know, in this pandemic recovery period. But you know, I'll say that, and then I think David will probably talk about some of the comparisons back to last year.
David Cobb (CFO)
Yeah, I think if you, you know, we, we had some generally easier comps and when you look forward into November and December, November being down, I want to say around 11%. Does that sound right, David?
David Humphrey (VP of Investor Relations)
Yeah.
Judy McReynolds (Chairman, President, and CEO)
In tonnage.
David Cobb (CFO)
In tonnage.
Judy McReynolds (Chairman, President, and CEO)
Yeah.
David Cobb (CFO)
Yeah, I'm sorry. So, so yeah, it's, you know, there's a lot that could happen. Obviously, there's an election going on, and then, and this pandemic. But, but we're encouraged by the momentum that we're seeing right now. Okay, thanks a lot, Jordan.
Judy McReynolds (Chairman, President, and CEO)
Thank you, Jordan.
Jordan Alliger (Equity Research Analyst)
Appreciate it.
David Cobb (CFO)
Thank you.
Operator (participant)
The next question's from the line of Jason Seidl from Cowen. Please go ahead.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
Thank you, operator. Judy, David, David, everyone, good morning.
David Humphrey (VP of Investor Relations)
Hi, Jason.
Judy McReynolds (Chairman, President, and CEO)
Hi, Jason.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
This is kind of piggybacking a little bit of what Jordan said. I mean, Judy, you brought it up. You said this might have been the best October ever. And, you know, if you just look at it on a sequential basis, you never have the same amount of tonnage, total tonnage in Q4 as you did in Q3. At least my model goes back 20 some years.
Judy McReynolds (Chairman, President, and CEO)
Right. I think that would be true.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
I'm not saying it. But, you know, you mentioned, I think David mentioned that the normal sequential move in OR is up 200 points. But, you know, I don't think we're going to see that again, based on your tonnage levels and also the fact that, I think David mentioned that you accrued $7 million for some of those payments for your employees in Q3, and only $4 million is going to be accrued in Q4. How should we think about, like, a logical move on the OR Q3 to Q4? Because it—to me, I don't see it being 200 basis points worse given current trends.
David Cobb (CFO)
Well, I appreciate your optimism, Jason.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
I'm trying, guys.
David Cobb (CFO)
Yeah, yeah. It's encouraging to see, I think this, what we're seeing in October from a revenues trend. And, you know, if that momentum continues, I mean, there's something there about that. Because when you think about July, for instance, July revenue per day was down 6% versus last year's July. So, you know, we're starting off in a good place, and the revenue per shipment trends are favorable. But, you know, as I mentioned, there's many uncertainties with the economy and the potential COVID impacts and political environment. But, you know, yeah. As you pointed out, and you were astute to pick up, some of those accruals that we have. But by and large, I think we're, you know, we've got some good momentum.
Judy McReynolds (Chairman, President, and CEO)
Okay. Well, I was trying to fish out some direct commentary. I guess the other thing I want to look at, just conceptually, and you brought up where your purchase transportation is, and I appreciate that. A lot of the brokers that have reported talked about Q3 being sort of the worst quarter they've seen in terms of the speed that the transactional market went against them for a lot of their contractual, excuse me, the spot rate went against them for a lot of their contractual business. And so as that spot sort of levels off and doesn't exactly take the hockey stick up that it did in Q3, is that going to help margins in that business in Q4 versus Q3?
David Cobb (CFO)
In the Asset-Light business?
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
Yes.
David Cobb (CFO)
I think there's potential for that to occur as we're able to source our capacity at yeah as that capacity pricing or as our market pricing to our customers is it catches up to that capacity pricing. That can happen. That's right.
Judy McReynolds (Chairman, President, and CEO)
Yeah. Well, the other thing that I was thinking about, though, just, you know, you think about elements that make capacity relax or tighten further. And one of the things that I'm interested in is the vaccine distribution and what impact that has and when that is. And we really don't know. We know that our ground expedite business will likely play a role in that. But just as you were asking that question, I was thinking about what does that do to overall capacity tightness for instance, in the Q4? And, and, you know, that's an interesting thing to think about. So but, you know, I think what we think about with our Asset-Light businesses, we're, we're really, trying to, more, I guess, deeply penetrate the customer relationships that we already have and gain some business there with new opportunities.
And we're at various stages of that with different customers. You know, whenever, you've got a mature relationship, you know, perhaps it's one thing, and, as you've got a new relationship, it's another. So, you know, as we grow, I, I think there will continue to be, particularly in truckload, some pressure on the margins. I think in expedite, there's an opportunity for something better, but some unique things that are coming from this pandemic that cause me to, yeah, I guess, say, have cautious optimism about that. Is what I'd say.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
Now, Judy, do you guys have a contract to move the vaccine?
Judy McReynolds (Chairman, President, and CEO)
Well, no, but you know, we're a source of capacity, you know, for that.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
Okay.
Judy McReynolds (Chairman, President, and CEO)
We're in conversations with different distributors and customers. You know, there's still a lot of unknown about the timing and the plan. But, you know, I was—I'm mindful of that when I think about our ground expedite business and the readiness for that, and then again, the overall impact that it could have on capacity.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
Well, I think we all want to see—
David Humphrey (VP of Investor Relations)
All right, Jason.
Jason Seidl (Managing Director and Industrial Transportation Research Analyst)
For sure. Take care, guys. Appreciate it.
David Humphrey (VP of Investor Relations)
Thanks a lot, man. See you.
Operator (participant)
The next question's from the line of Jack Atkins with Stephens. Please go ahead.
Jack Atkins (Research Analyst)
Hey, great. Good morning, everybody. Thank you for taking my questions.
Judy McReynolds (Chairman, President, and CEO)
Good morning, Jack.
David Humphrey (VP of Investor Relations)
Hey, Jack.
Jack Atkins (Research Analyst)
Hey, Judy. Hey, Judy. David, and David. So, I guess, Judy, going back to your comments in your prepared remarks about the you know, productivity gains and the investments that you guys have made there in automation to drive and improve network efficiency. I mean, when I kind of strip out the $7 million in bonus costs from the Q3, you guys are kind of getting back to that Q3 2018 OR at a lower tonnage level. So, can you maybe kind of walk us through where you are in terms of those automation and productivity investments and sort of what's to come in 2021?
Judy McReynolds (Chairman, President, and CEO)
Yeah, I mean, I think, when we step back and look at the Asset-Based business and what has transpired, you know, we've been building network optimization software for the last two years, and, we've—we completed certain phases of that in the Q4 of 2019, and we're starting to see that, you know, in, in the numbers. Whether it's lightlane software or load point planning, you know, those kinds of projects have really helped us, and we've got more of those, in, in the hopper, you know, as we move forward. You know, the, the interesting thing, too, is just the close work with yield on some of this transactional LTL business. It really has been responsive to customers and the channels they want to do business.
But for instance, in the Q3, it helped us reduce empty miles by about 16%. And it's also helped our city route density. And again, I commented earlier about the productivity improvements, which were to some extent from this, but also I just think our software and our tools to more tightly manage, you know, the activities there has helped us. We introduced a mobile dispatch system that was implemented late in 2019, and it's helping us to better communicate with our drivers through messaging and automated alerts, and it's also, you know, improving our customer experience. So, you know, we have really seen some impact, positive impact of those kinds of things.
And again, I'm most pleased about the coordination of our yield decisions and addressing customer opportunities, while at the same time creating operational efficiency. All that has, you know, again, played out in a year where we've had some extreme ups and downs in business because of the pandemic.
Jack Atkins (Research Analyst)
No, absolutely. It's really, you know, encouraging to see that. So I guess for my follow-up question, if I could ask about, you know, yield trends. When I look at the commentary on contractual rate renewals, there was a little bit of a deceleration there versus what you saw in the Q2. You know, versus some peers that saw accelerating trends and obviously, everything we're hearing about capacity in the LTL networks out there, that's very tight. Could you maybe talk about what you're expecting to see, you know, in terms of contractual renewals as we move into the Q4 into 2021? Would you expect to see that number accelerate?
Judy McReynolds (Chairman, President, and CEO)
Well, you know, I think, you know, when we look at what happened in the Q3, I'd just remind you of some of the conditions that our, our customers were in. I mean, we had a lot of businesses that, during the Q2, closed or were at, you know, a place where they really weren't in normal activity or normal modes of things. And so what we were doing was being patient and waiting for some of the contractual renewals that arose naturally during, say, the Q2 months, you know, and some of those were deferred or pushed out into, you know, the later months of the year. And, you know, some of these companies are, are not in a great position themselves.
And so, you know, all of that is in mind, plus, I think on top of a lot of actions on our part with CMC and other, you know, price improvement actions that we've taken over the years, to which I believe have been appropriate, to make sure that we're getting paid for the space that's used on a trailer. But, you know, all that's in place, and then you have the environment of the pandemic and what that means to those negotiations. And so I wouldn't take, you know, a lot of instruction from the Q3's results just by itself. I think you have to look at what we do over longer periods of time, and I think you would agree that we're very disciplined in this area, and I would continue to expect us to be.
And we're always reviewing the profitability of our accounts and the opportunities that we have, but we also know what a good long-term customer looks like, and we appreciate having them. And, you know, I think that part of that was present as you look at the Q3 results.
Jack Atkins (Research Analyst)
Okay, great.
David Humphrey (VP of Investor Relations)
Hey, Jack, I'm going to move us along.
Jack Atkins (Research Analyst)
Thanks a lot.
Thanks, David. Appreciate it.
Operator (participant)
The next question is from the line of Chris Wetherbee from Citi. Please go ahead.
Chris Wetherbee (Senior Research Analyst)
Hey, thanks. Good morning, guys.
David Cobb (CFO)
Hi, Chris.
Chris Wetherbee (Senior Research Analyst)
So wanted to touch maybe on the resources and the headcount in particular. So David, I think you mentioned that you're generally able to sort of hire the people you wanted to. I guess maybe getting a little bit more specific for Q4, can you give us a sense of sort of what you need for the Q4 in terms of headcount and maybe how that kind of factors into that sort of historical progression seasonally of OR from Q3 to Q4?
David Cobb (CFO)
Well, I think the... You know, as you saw, or as I mentioned, we had some elevated PT to handle, you know, when you think about these business volumes that were really volatile in terms of the decline and then the rapid increase. And the other interesting thing about the way that business came back is that it, you know, it's not even across our system. So, in other words, we have certain geographic locations that have a bigger resource need and bigger business volume return... than others. And so, when you have that sort of imbalance across the network, you know, it requires us to use some outside resources just to serve our customers and serve areas.
And so, you know, and it is, you know, it's easier to find appropriate, you know, people in different places. And, and certainly, the pandemic has put a challenge on, you know, just our normal recruiting efforts, we'll just say.
Judy McReynolds (Chairman, President, and CEO)
Yeah. Well, and to that point, we had, I think, at the highest point, about a thousand of our labor employees on layoff. And today, that number is less, probably around a hundred—
David Cobb (CFO)
Yes.
Judy McReynolds (Chairman, President, and CEO)
—or so.
David Cobb (CFO)
We got most of them back.
Judy McReynolds (Chairman, President, and CEO)
But to David's point, one of the statistics that we gathered in advance of this call was this: 72 service centers experienced double-digit growth for allocated weight, and 53 service centers experienced double-digit decline. More than 50% of our locations experienced double-digit year-over-year swings in their business levels. So, you know, that's a part of this whole story that's really interesting. And so I think, you know, when we're looking to hire, I think it's in a lot of places, but those areas where we've had the declines, not so, not as much. You know, there's not as much of a need there as we move forward. And certainly, the business levels are ahead of where the hiring has been in terms of overall employee count, and you see that reflected in our purchase transportation utilization.
But a lot of that, you know, a lot of that issue is because of this imbalance issue that we've seen. So, we're trying to work through a lot of things here. Thank goodness, we have the ability to use rail and road power to be able to help us balance, and we'll probably see less of that as time goes on and as we hire. But you know, it's a process that we have to go through to get more in balance, including our customers getting more in balance.
David Cobb (CFO)
That's right. And those would be, you know, kind of back to your, I think your question in terms of incremental cost. Sequentially, it's—those I would view more as offsetting. So, as we were able to do that work internally, it may be actually an opportunity for us to lower overall cost per shipment.
Judy McReynolds (Chairman, President, and CEO)
Yeah.
David Cobb (CFO)
Yeah.
Chris Wetherbee (Senior Research Analyst)
Okay.
Judy McReynolds (Chairman, President, and CEO)
It's certainly more, I think, more stable and more ideal. Yeah.
David Humphrey (VP of Investor Relations)
Hey, Chris, I won't move us along.
Chris Wetherbee (Senior Research Analyst)
That's all right.
Judy McReynolds (Chairman, President, and CEO)
Thank you.
Chris Wetherbee (Senior Research Analyst)
Not a problem.
David Humphrey (VP of Investor Relations)
Thanks, man.
David Cobb (CFO)
I appreciate it.
David Humphrey (VP of Investor Relations)
See you.
Operator (participant)
The next question's from the line of David Ross, from Stifel. Please go ahead.
David Ross (Managing Director of Transportation Research)
Yeah, good morning, everyone. I'll try to avoid the Humphrey hook.
David Humphrey (VP of Investor Relations)
Yeah, that's right. The clock is ticking.
David Ross (Managing Director of Transportation Research)
I know, I know, I know. Want to just talk about the network. Now that it's not a downsizing exercise and tonnage is growing again, where does the facility count stand today? And do you think that you're going to be up or down on number of terminals in 2021?
Judy McReynolds (Chairman, President, and CEO)
Well, Dave, I think there's probably relative stability there, is what I'd say. I think our current count is maybe 241 facilities, something like that.
David Ross (Managing Director of Transportation Research)
Right.
Judy McReynolds (Chairman, President, and CEO)
But, you know, I think there's relative stability there. We, you know, one of the things when you've been in business for almost a hundred years, you know, you really have more of a longer term, you know, perspective on some of these things. And certainly, we're going to react if we see sustained business growth that causes us to really invest in those resources. But until we see things, I think, become more settled through this pandemic period and that sort of thing, it's a little bit hard to see what is, you know, going to be continuing. But I like being in a growth mode, and we're focused on that, and we have some room to grow.
Certainly, I think it was mentioned earlier that we're, you know, at lower, lower tonnage levels than we've run through a similar system. And so, but, you know, as I mentioned earlier, with the imbalance of where we've seen growth and where we've seen declines in business, you know, some locations are certainly tighter than others, and that's a part of this equation, too.
David Cobb (CFO)
Yeah.
David Ross (Managing Director of Transportation Research)
So, David, as we look at 2021, is there any need for, I guess, lumpiness in the CapEx? You know, any preliminary thoughts on facility expansions that may take that CapEx number higher than it otherwise would be, or should it be more of a replacement year with the fleet?
David Cobb (CFO)
Yeah, and I think, you know, that's a good question. You know, we will, as we normally do, provide an update, our CapEx plans for 2021 in when we release our Q4 results. But I guess to maybe think about that in terms of when we started 2020, our original CapEx plans were estimate was around $135 million-$145 million. And so, you know, at the beginning of the pandemic, we lowered that from those original plans, and our current expectation is around $90 million-95 million for this year. So, you know, I would think of that in terms of, you know, we want to maintain our replacement cycle on revenue equipment.
We want to continue our other maintenance items and strategic investments. So probably a higher level than 2020. And, you know, maybe a point to gauge would be that estimate that we provided at the beginning of the year is a starting point. But we'll need to finalize those plans and think about that. And, you know, as Judy said, there's tightness in certain areas and, you know, real estate is certainly always a consideration as we develop our CapEx plans, so.
David Ross (Managing Director of Transportation Research)
Excellent. Thank you.
David Humphrey (VP of Investor Relations)
Thank you, man. We'll see you.
Operator (participant)
The next question's from line of Ken Hoexter with Bank of America. Please go ahead.
Ken Hoexter (Managing Director)
Hey, good morning, Judy, David, David.
Judy McReynolds (Chairman, President, and CEO)
Hi, Ken.
Ken Hoexter (Managing Director)
So just maybe following up on the capacity question from Chris. But if you maybe talk about what capacity you have to absorb that 10% growth in October, and if that continues, you know, how do you adjust? I just ask that because Dave noted that PT costs will subside. And then why is truckload down, given the tight spot market? Don't you get the flow down from that in these peak times?
Judy McReynolds (Chairman, President, and CEO)
Yeah, interesting question. Well, you know, I'm, I think whenever we look at some of our labor planning, for instance, you know, our shipments have not moved up as much as the tonnage or the weight. And so I think that helps us from a resource ability to handle that. And again, we already talked through the elevated purchase transportation, which is, you know, a combination of rail and road power, you know, that we're utilizing there. And, you know, I think that's an interesting thing to think about as we move forward, but I feel like that we can handle that okay. And, you know, the—remind me of the second part of your question.
Ken Hoexter (Managing Director)
The truckload in this kind of market—
Judy McReynolds (Chairman, President, and CEO)
Oh, yeah, the truckload.
Ken Hoexter (Managing Director)
Do you usually get the spillover?
Judy McReynolds (Chairman, President, and CEO)
Yeah, it is an interesting thing that we're experiencing here. We're actually seeing, you know, I think an opportunity to have more LTL transactional shipments, which, you know, we are focused on and, you know, bringing on some new relationships and then also servicing some existing ones. And, you know, I think it really is more a story of the availability of that than it is the truckload spillover. So we just wanted to be sure to point that out as we're looking at year-over-year. And we just see that the more optimized answer for us, because of the network needs that we have and the empty capacity needs that we needed to fill, was to utilize those LTL transactional shipments, which we, you know, we feel good about the overall result that that had and how that coordinates well with the published business that we have.
Ken Hoexter (Managing Director)
Then real quick for David Cobb. Your thoughts on data tech investments. So are we seeing that scale if CapEx is staying low here?
Judy McReynolds (Chairman, President, and CEO)
Well, it was—I think Ken's question was about the tech investments.
David Cobb (CFO)
Okay.
Judy McReynolds (Chairman, President, and CEO)
Expand on tech, tech investments.
David Cobb (CFO)
Yes. No, so we're fully invested there and want to continue to do that. I mean, that's we're seeing the results, I think, of investments that we've made over the years in our results. And so, we continue to invest in both software and hardware items, and I think that's going to be in our CapEx build as we plan for 2021.
Judy McReynolds (Chairman, President, and CEO)
Yeah. One thing, Ken, that I would say is that, you know, our tech spend as a percentage of revenue, we feel like is on par, you know, with other companies that we compete with. And but what's interesting about it is we feel like that more of our spend goes to what we would call strategic investments Rather than just run the business. That's what our comparisons show. So, you know, we're really happy about that, and we feel like that's a, that's a great thing for advancement.
Ken Hoexter (Managing Director)
Appreciate it.
David Cobb (CFO)
Thanks a lot, Ken.
Ken Hoexter (Managing Director)
Thank you very much. Thanks, Dave.
David Humphrey (VP of Investor Relations)
See you.
Operator (participant)
The next question's from the line of Scott Group from Wolfe Research. Please go ahead.
Scott Group (Managing Director and Senior Analyst)
Hey, thanks. Morning, guys.
David Cobb (CFO)
Hi, Scott.
Scott Group (Managing Director and Senior Analyst)
So I just want to go quickly back to that last point about truckload spillover. I thought the October update is that TL spot shipments were up double digits. Is that not truckload spillover?
Judy McReynolds (Chairman, President, and CEO)
Oh, you're talking about our in the Asset-Light piece of the business?
Scott Group (Managing Director and Senior Analyst)
I thought, I'm just reading a double-digit percentage increase in truckload rated spot tonnage moving in the Asset-Based network in October.
Judy McReynolds (Chairman, President, and CEO)
Oh, well, that is more of our U-Pack business.
Scott Group (Managing Director and Senior Analyst)
Okay.
Judy McReynolds (Chairman, President, and CEO)
The U-Pack business that we do is truckload rated.
Scott Group (Managing Director and Senior Analyst)
Okay. Okay.
Judy McReynolds (Chairman, President, and CEO)
So it's not what1I think when, when the thought is about truckload spillover that's not conceived in that thought, is, is that it would be, you know, U-Pack moving business. So—
David Cobb (CFO)
Right.
Judy McReynolds (Chairman, President, and CEO)
Yeah.
David Cobb (CFO)
That's what's driving that entirely.
Judy McReynolds (Chairman, President, and CEO)
Right.
David Cobb (CFO)
Yeah.
Scott Group (Managing Director and Senior Analyst)
Okay. And then, Judy, just a couple of bigger picture questions. If, if we look over a 10-year period, I think you had never had an OR better than 97 in the LTL business, and now we've got three years in a row, 93-94 on, on OR. What do you think is the, the right—is there, is this, is there a new range to think about for your LTL margins through a cycle? And then, just separately, I, I saw a presidential memorandum around pensions and just wondering your thoughts there and, and what a, what a good outcome for you guys you think?
Judy McReynolds (Chairman, President, and CEO)
Yeah. Well, I think, you know, that's, that's certainly a part of that OR range, we know for sure. But, you know, one of the things that we've noted is that we have had nearly 350 basis point improvement in the operating results for the Asset-Based business since 2016's recession. And I think we would all agree that this period here is certainly more difficult to navigate than what, what was there in 2016. So, you know, that is really, I think, noteworthy for us and does, I think, create a new range of thinking, on the operating performance for the, for the Asset-Based business. You know, I mentioned earlier some of the visibility and management tools and optimization, as well as the coordination with yield strategy in terms of the best business that we could have in the network.
And I really think that that's a strong contributor to the improvement there. And, you know, we, we've always had an opportunity for more consistent results. And I think that's what I'm very focused on, is trying to create greater consistency, whether it's quarter-to-quarter in terms of seasonality in the business or if it's in the cycles. And I think, you know, that's my objective, and I think if we were to accomplish that, I think we could see further improvement in the operating performance for the Asset-Based business. And then on top of it, it would be more consistent. And, you know, again, technology, analytics, advancements, visibility, and then great execution, all of that comes together, as a part of that story.
Scott Group (Managing Director and Senior Analyst)
Okay, thank you.
David Cobb (CFO)
Thanks a lot, Scott.
David Humphrey (VP of Investor Relations)
Appreciate you, man.
Operator (participant)
The next question from the line of Todd Fowler from KeyBanc. Please go ahead.
Todd Fowler (Stock Analyst)
Hi, great, thanks, and good morning.
Judy McReynolds (Chairman, President, and CEO)
Good morning, Todd.
Todd Fowler (Stock Analyst)
Good morning. Hey, good morning, everyone. Just on the thoughts on pricing and really it kind of dovetails in with what you just talked with Scott about on being more consistent. You know, because you guys have done just a really good job throughout this cycle in being disciplined with pricing, you know, how do you think about the range of contract renewals, you know, over the course of the next cycle? Is it something where, you know, maybe it's not as high as what we've seen in the past because you've been more consistent, or is there still the opportunity to go out and get high single or low double-digit contract renewals on some of your freight?
And then if you could also just dovetail in some thoughts on a GRI. I know you guys typically don't lead, but is this an environment where we could see a sooner GRI, just given some of the freight dynamics? Thanks.
Judy McReynolds (Chairman, President, and CEO)
Well, you know, I think when we think about the contractual renewals, you know, I think the history on that, it, you know, would show you or tell you that it would be pretty unusual to be in those high single digits.
David Cobb (CFO)
Oh, yeah.
Judy McReynolds (Chairman, President, and CEO)
I think that's pretty unusual. Although, you know, I think we've made a lot of progress over time, and you look at maybe some comparisons that we would have back to pre-2017, the cubic minimum charge action that we took. You know, it would, you know, the improvements that we've had would be pretty dramatic. But, you know, I think that when we look at it, you know, it's a combination of business that's good for us and works well for us in the network, as well as being responsive, you know, to what customer needs are. And, you know, I think for the period of time that's upcoming here, I think companies or businesses in general are not in their optimal range of profit margins.
I think what's gonna be on their minds is that they've got to continue to keep their logistics costs in check. That's one of the reasons why I like our strategy as well as I do, because, you know, we're able to bring a variety of solutions to a given circumstance and bring that together in a way that perhaps overall reduces logistics costs for our customers, but also gives us the payment or the increase level that we need, you know, for a given solution.
But I do recognize that over longer periods of time, you know, logistics, I think for our customers, is a strategic weapon for them, and I think they've seen pretty good size increases, and this year is gonna be a very disrupted year for them. So they're gonna be focused on, you know, trying to get to a better place. And that's, again, why I like our integrated solutions that we bring to bear or that we offer. You know, that creates greater consistency in business from a customer, which we always benefit from, but it also helps us, you know, accomplish both of those goals. One, that's really customer focused, and the other that's focused on our improvement in cost and profitability.
David Cobb (CFO)
Yeah, and I'll just add, Todd, it's—I think you hear it in Judy's voice, just the interest in from the customer's perspective. And that's really, you know, our vision and the reason why we see a long-term sustainability in our program here, so.
Todd Fowler (Stock Analyst)
Yeah. Okay, that helps. And then just any thoughts you care to share on a GRI would be great. Thanks.
Judy McReynolds (Chairman, President, and CEO)
Yeah, the GRI, yeah, I—David, do you want to comment about that?
David Cobb (CFO)
Well, just—
Judy McReynolds (Chairman, President, and CEO)
Yeah.
David Cobb (CFO)
Just, you know, as a reminder, you know, we had a 5.9% back in February of about, I think, around February 24th—
David Humphrey (VP of Investor Relations)
It was late, late February.
David Cobb (CFO)
—end of this year. And then, the previous February, early February, we did another one or did the one before that. So, you know, it's, you know, we're always, our yield folks are always monitoring the customer relationship side of that. So, to try to determine when it's the right time for a GRI, and we're typically not gonna be the first in the marketplace to announce one. But, at this point, we haven't made any decisions about that timing, and so we'll evaluate, you know, input from our sales group and their discussions with customers. And, you know, as Judy mentioned, all this disruption that our customers are experiencing, we want to evaluate that and consider that in all these decisions, so.
Todd Fowler (Stock Analyst)
All right. Fair enough. Thanks for the time this morning.
Judy McReynolds (Chairman, President, and CEO)
Thank you.
David Cobb (CFO)
Thanks a lot, Todd.
Todd Fowler (Stock Analyst)
All right.
Operator (participant)
The next question is from the line of Stephanie Benjamin with Truist. Please go ahead.
Stephanie Benjamin (Equity Research Analyst)
Hi, good morning. Hi, Judy. Hi, David. Hi, David.
David Humphrey (VP of Investor Relations)
Hi, Stephanie.
Stephanie Benjamin (Equity Research Analyst)
Hi, I wanted to talk a little bit about the Asset-Light margin improvement. I think you guys demonstrated some pretty efficient cost controls, you know, particularly given the higher purchase transportation costs. Could you talk a little bit about the sustainability of those cost controls? You know, how we should think about that as we go into the Q4 and 2021, and just any efforts you have made. I know a lot of efforts on the Asset-Based side to improve the margin profile, but love to hear what's been going on behind the scenes on the Asset-Light side. Thanks.
David Cobb (CFO)
Yeah, I would just say that, you know, we're-- I think what you see there is some reflection of our technology and how we're doing a lot... a number of things systematically in digital tools that we put in place, Stephanie. And so, that's helping us there, and we want to, you know, our focus is to sort of minimize the transaction cost related to those loads. And so, it's good to see that. And we've got a long ways to go there. We've got, you know, efforts around just this full back end touchless sort of transaction that we want to get to. And we've made some advancements, but we've got some ways to go there, I would say. You know, again, shipment visibility and you know, just automating that tracking for our customers and carriers and connecting those carriers electronically with our loads. And all those initiatives have advanced, but
Judy McReynolds (Chairman, President, and CEO)
Yeah, I've got another example that I think is, you know, just worth sharing is, you know, we're using AI to read emails and to categorize emails. And that helps us with acting on them quicker. It helps us with the customer experience, but it also—for instance, if it's an email that's directed at a document that's needed, we can deliver that without a human being involved. But, you know, so that's an example of what we're doing that is, you know, I think automation or at a minimum, it's enablement of our people.
But, you know, we still strongly believe in the value of the human involvement in our customer relationships, but we're trying a number of things to enable our people better and to have the more routine be addressed by a technology answer. And, you know, where it's more complicated or where the human intervention or involvement is important, we're doing that as well.
David Cobb (CFO)
Yeah, and then, and just on the, just attracting more shipments, you know, that's, that's an area that we're also looking at, at growing. I mean, we've done some of that, but, you know, so from just obtaining those customer quotes, and booking those, through our APIs and through our arcb.com connection, that's, that's an area that's gonna hopefully advance as well.
Judy McReynolds (Chairman, President, and CEO)
Our understanding, too, of customers and the channels they want to do business in is advancing, and we're trying to, you know, direct our resources in an appropriate way.
David Cobb (CFO)
Yeah, we see a lot of opportunity there for that piece of the business to grow.
Stephanie Benjamin (Equity Research Analyst)
Got it. Really appreciate all the color. Thanks so much.
Judy McReynolds (Chairman, President, and CEO)
Thanks, Stephanie.
David Humphrey (VP of Investor Relations)
Okay, Stephanie, thanks a lot. Well, listen, that's all the folks that we've got lined up for questions. I guess that ends our call. We want to thank you for joining us this morning. We appreciate your interest in ArcBest, and this concludes our call. Thanks a lot.
Operator (participant)
That will conclude the conference call for today. We thank you for your participation, and you can now disconnect your line.