David Humphrey - VP, IR Judy McReynolds - Chairman, President & CEO David Cobb - VP & CFO

Chris Wetherbee - Citigroup Ken Hoexter - Merrill Lynch Jason Seidl - Cowen Brad Delco - Stephens Inc. David Ross - Stifel Nicolaus Scott Group - Wolfe Research Todd Fowler - KeyBanc Capital Amit Mehrotra - Deutsche Bank Ravi Shankar - Morgan Stanley

Welcome to the ArcBest Corporation first quarter 2017 earnings conference call. We will have a short discussion of the first quarter results and then we will open up for a question and answer period.

Our presentation this morning will be done by Ms. Judy McReynolds, Chairman, President and Chief Executive Officer of ArcBest Corporation, Mr.

David Cobb, Vice President, Chief Financial Officer of ArcBest Corporation. We thank you for joining us today.

In order to help you better understand ArcBest Corporation 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 more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release and the Company's most recent SEC public filings. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release.

We will now begin with Ms. McReynolds.

Thank you, David and good morning, everyone. The first quarter is typically our most challenging of the year while bringing some unique aspects into play this one with no exception.

Although, we made progress with our strategy to better serve our customers. Our non-GAAP results were essentially flat with last year.

It is also worth noting that our comparison to last year includes a $2 million increase in ongoing technology and innovations investments. Those costs are shown in the other eliminations line item.

With respect to first quarter, clearly we’ve more work to do to achieve the results we expect to see. At a high level the stock market posted some initial strong results as the new administration took over in Washington.

But economy growth was inconsistent throughout the quarter. We’ve yet to see a pattern of solid sustainable activity on that front as the various statistics that we track remain somewhat volatile.

However, we’re cautiously optimistic when we see signs that the macro economy is improving. Consistent with recent quarters on the asset based side of our business we continue to see smaller weight for shipment, but increases in shipping counts.

We are a trusted partner for customers that require residential deliveries and as a result we have seen tremendous growth in this area. Our goal is to provide value while more effectively managing our costs and we have a number of initiatives in progress to address that goal.

We view these customers and shipments as a great opportunity but one that requires as to continually adapt our services and shipment charges in order to offer a superior customer experience that results in acceptable profit margins for our company. On the ArcBest assets light-side a degree of weaker demand particularly in the truck load sector continued to weigh on results.

We were pleased with the performance of our expedite offerings that our dedicated truck load and international service lines produced operating results that were below our expectations. Our asset like services provide a great opportunity for growth and improved profits and our sales force is focused on that opportunity.

Our enhanced market approach under which we now offer most of our services as our best became fully operational in the first quarter. We have received positive customer feedback from this initiative and our discussions with our customers are on a deeper level than ever before.

Importantly, by being able to provide the full scope of supply chain solutions that our customers need, the asset based business that would have gone elsewhere is now coming back to us as one part of a multi-layered solution. These are all very encouraging developments that will bring confidence to our sales, customer experience and operational efforts across the entire organization.

It's also note worthy that the cost savings associated with this initiative met our expectations in the first quarter. And now I will discuss more details about our service offerings.

First quarter revenue for ArcBest asset based LTL services improved versus last year because of increases in shipment account and higher average revenue per 100 weigh. Stronger pricing metrics were associated with the increases and fuel surcharge and shipment profile changes including reductions in average weight per shipment.

While speaking to obtain compensatory prices on the final mile shipments we have added we are also managing pricing opportunities on spot rated truck load shipments that positively contribute to revenue growth and operational efficiency. Industry pricing was consistent with recent quarter and continues to be competitive and rational.

ArcBest yield management team is obtaining price increases on existing accounts during normal annual renewal periods and in out of cycle periods for accounts not currently meeting acceptable profitability thresholds. Negotiations on contractual customers agreements remain challenging but the results ArcBest has achieved are good.

ArcBest is actively seeking new business at a pricing level that offer the opportunity for profitability returns. Continuing at trend we have experienced for several quarters LTL shipments grew at a healthy pace that exceeded the rate of tonnage change.

The total asset based productivity showed a slightly first quarter improvement the additional shipments and the associated degree decreased in average weight per shipment I previously discussed impacted dock and city handling cost as well as cartage cost and therefore profitability. Our asset based line-haul operation gained benefit from utilizing a positive combination of various transportation resources which resulted in a reduction in empty miles in the first quarter compared to the same period last year.

We began taking delivery of our new replacement tractors late last month which positively contribute to reducing the age of our road and city fleets while offering improved fuel economy and lowering our equipment maintenance cost. We monitored our expenses in these areas and believe there are opportunities to achieve an improved total cost of ownership as we experience the benefit of our investments.

Non-union asset based healthcare cost increased during the first quarter. We believe the investments we have made throughout the ArcBest in health screening disease prevention education and encouraging positive lifestyle changes with many of our employees will ultimately yield future reduction in these costs.

And we continue to benefit from personnel added from long established new employee training programs in our asset based business our driver development program and our teams in military assistance program have been good sources of new engaged employees who are making positive contributions to our asset based operations. The improvement in ArcBest first quarter asset light revenue was a result of incremental business in our dedicated truck load services segment.

You will recall that we acquired that business last September. We also benefited from increases and expertise revenue associated with higher revenue per shipment.

These revenue increases were offset by lower business levels and truck load and other asset like segments associated with reduced demand. In spite of a slight decline in the number of shipments handled during the quarter the rise in ArcBest expedited revenue was related to an increase in average revenue per shipment associated with greater length of haul and an increase in average revenue from mile.

Net revenue margins were below last year as the increase in purchase transformation mileage rates exceeded the increase in rates charged to our expedited customers. Due to reduced customer demand, fewer shipments were handled by ArcBest truck load service line which impacted net revenue totals and profitability.

As we have seen in our expertise business net revenue margins were pressured by higher costs for purchase transportation relative to rates charged to customers. The addition of dedicated truck load services contributed positively to this quarter's asset like revenue growth however the volumes and margins in this business were lower than we expected because of record precipitation in the northern Nevada region where much of this business is handled by our company.

We are pleased with the positive prospects our dedicated business offered us and we are capitalizing on opportunities for internal operational collaboration between our asset-like dedicated expedited and truck load services. This collaboration among our service offerings is positive for customers as well versus a strong business and margin environment last year ArcBest international business handled fewer total ocean shipments that moved at lower net revenue margins that's impacting operating results.

The ocean shipping market disruption that occurred through much of the last year continued to impact ocean container capacity and lower industry margins. On a combined basis our dedicated truck load and international business first quarter margin contribution missed our expectations by nearly a $1 million versus last year fleet net reduced revenue for the quarter was driven by fewer road side events despite the lower top-line figure fleet net operating income was comparable with last year due to cost controls and improved productivity of its customer service personnel.

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

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

First quarter 2017 consolidated revenues were $651 million, compared to $621 million in last year's first quarter, an increase of 4.8%. On a GAAP basis, we had first 2017 net loss of $0.29 per share compared to net loss of $0.24 per share last year.

As detailed in the non-GAAP reconciliation table in this morning's earnings release, the adjusted first quarter 2017 net loss was $0.22 per share compared to $0.22 in the same period of 2016. The adjustments taken in first quarter 2017 included $1.6 million or $0.04 per share related to our enhanced market approach that was implemented beginning from January.

We currently expect to incur approximately one million of additional structuring cost to the remainder of 2017. ArcBest first quarter effective tax rate was a benefit rate of 41.4% essentially in-line with our full year expected range of 40% to 41% under the current tax law.

As we saw throughout 2016, our reported first quarter results were adversely impacted by increased healthcare cost versus the same period in 2016 total corporate healthcare cost increased $1.3 million approximately $0.03 per share on the after tax basis. This included an increase on asset based non union employees of approximately $800,000.

The increase in these costs was the result of higher claims severity. We didn't purchase any ArcBest stock in the first quarter but under our existing repurchase program we have approximately $38 million of purchase availability.

We ended the first quarter with unrestricted cash and short term investment with $139 million combined with the available resources under our credit revolver in our amended receivable securitization agreement and are associated accordion features our total liquidity equaled $366 million at the end of the first quarter. Our total debt at the end of first quarter of $227 million includes the $70 million balance on our credit revolver, a $35 million borrowed on our receivables securitization and $122 million of notes payable to capital leases, primarily on equipment for asset-based operations.

The composite interest rate on all of our debt is 2.4%. Full details of our GAAP cash flow were included in our earnings press release.

ArcBest reported asset-based first quarter revenue of $464 million, a per day increase of 4.9% compared to last year. We had 64 working days in first quarter of 2017 compared to 63.5 working days in last year's first quarter.

Asset-based quarterly tonnage per day decreased by 0.7% compared to last year's first quarter. For first quarter 2017, by month, asset-based daily tonnage versus the same period last year decreased in January by 1.1%, decreased 0.8% in February and decreased by 0.3% in March.

First quarter total shipments per day increased by 5.7% compared to first quarter 2016. Total asset-based weight per shipment was 1,208 pounds, a 6% decrease from last year's first quarter and flat with first quarter of 2016.

Average length of haul on asset-based shipments increased 1.5% to 1,031 miles, compared to 1,016 miles in the first quarter of last year. On a sequential basis versus fourth quarter length of haul declined a little over 1%.

First quarter total billed revenue per hundredweight on asset-based shipments was $29.47, an increase of 6.3% compared to the first of last year. Year-over-year comparisons of this yield figure were positively impacted by higher fuel surcharge and changes in shipment profile and business mix.

Excluding fuel surcharge, first quarter billed revenue per hundredweight on asset-based LTL freight had a percentage increase in the low single-digits. We secured an average 3.9% increase on asset-based customer contract renewals during the quarter that average increase was slightly higher than both last year's first quarter and the recent fourth quarter.

In total our asset light business had revenue of about $193 million a 3.9% increase over last year's first quarter. On an adjusted basis first quarter operating income for these businesses totaled $2.8 million and adjusted EBITDA totaled $6.3 million compared to adjusted operating income of $1 million and adjusted EBITDA of $4.7 million in the prior year quarter.

When doing asset based results for the month of April versus April 2016 were as follows. Daily build revenues increased approximately 7% total tonnage per day increased approximately 1% with LTL tonnage slightly stronger.

On a sequential basis versus March, April tonnage trends are above the historical average. Shipment counts increased approximately 6% consistent with the trends we have seen for several quarters we are continuing to see a lower average weight per shipment on a year-over-year basis which is reflective of our growth in residential deliveries.

Total revenue per hundredweight increased approximately 6% was positively affected by higher fuel surcharges and changes in freight profile and account mix. On a historical basis the average sequential change in our ArcBest asset based operating ratio in the second quarter versus the first quarter has been an improvement of approximately 500 to 600 basis points.

On a combined preliminary basis April 2017 revenue from our asset like businesses was flat compared to April of last year. The logistic portion of the asset like business show single digit revenue growth on a year-over-year basis primarily due to increased demand for expedite services and dedicated revenue in this year due to the LDS acquisitions in September of 2016.

In April, as we have seen for several months fleet net experience double digit revenue declines compared to last year due to fewer customers advance. Consistent with our recent first quarter for the remainder of 2017 the quarterly loss reported in the other eliminations line is expected to have approximately $4 million per quarter.

This includes the technology and innovation investments Judy mentioned in introduction. Keep in mind the previous information I shared on our expected 2017 interest expenses and those cost in these recent quarter net of interest income it is expected to total approximately $4.5 million for the year generally occurring in similar amounts in each quarter.

This net interest expense does not include changes in cash rendered value which are reported in the other net line of our income statement which we had in the recent quarters. We consider changes in cash rendered to be non-operating items and therefore excluded from our non-GAAP presentation.

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

Thank you, David. For the eight consecutive year, the employee training program operated by ABF Freight was included as one of the training top 125 for excellence in employer sponsored training and development programs as recognized by training magazine.

We were ranked as the 13th best training program this year. Most every week here in our Portsmouth corporate headquarters we have variety of training classes in the areas of operation, sales leadership computer skills and the quality process.

I always enjoy getting to meet our folks while they are here for training and learning about their experiences and customer success stories from around the country. As I indicated to you last quarter we were cautiously optimistic at the time on our outlook for 2017 and I would say that we remain so now despite some sluggishness in the first quarter.

Structural economic reforms remain on the agenda including tax policy, regulatory release and increases in infrastructure spending. We believe that progress in these arenas would provide meaningful catalyst for the economy and for our business.

As a side note one of our ABF Freight drivers [indiscernible] had the opportunity to go to Washington in the first quarter as the American Trekking Association's represented the many needs of our industry including healthcare reforms to the new administration. We are proud to have Rob represent the incredible standards for safety and professionalism for which ABF freight is known.

Meanwhile we had many initiatives underway at ArcBest that will benefit our customers and provide them with the best possible experience available. These include implementation, assistance that provide a single view of the customer, marketing efforts to expand lead generation many IT efforts including tools to help with the work load visibility and decision making as well as line-haul and street optimization tools.

And finally, I believe some of you may have seen our new advertising campaign in the Wall Street Journal and other financial and trade publications with welcome to simplistic we are highlighting ArcBest unique ability to simplify and uncomplicated even the most complex logistic challenges that our customer face every day. We do that with people who have the skill and the will to get the job done.

We are ready to take some questions now I think David.

Okay Leela, I think we are ready for some questions.

Hi, good morning.

Good morning Chris

Hey I wanted to touch based on the assets based side and really sort of get an understanding of the weight per shipment and I think the residential delivery is picking up for part of that but sort of get a sense of how you can manage that sort of business mix as it’s evolving a little bit residential relative to the cost associated with it so it seems like there is going to be little bit more cost in the quarter that we are expecting just trying to get a sense maybe how we should see that playing out as that business grows over the course of the next year or two?

That's a great question Chris and one we have been very focused on this quarter ourselves we have seen a tremendous amount of growth in our non-EPAC residential shipments really since November, December timeframe last year for instance in the first quarter we saw those shipments grow 40% and if you were to look at January, February, March it was kind of uneven how they - how those shipments grew and so one of the challenges that that presents to us is operational tactics that work best for that business. And so that's something that we have been very focused on.

We have some locations that have absorbed that and worked very well with it and we have had other where it's presented more of a challenge. In some cases when there has been challenge we have had to use more expensive cartage costs to help us deliver the service that we promised to the customer and that's not to say that cartage is necessarily a bad answer but I think whenever you have to work through the options you want to be sure and plan ahead with that.

And so again, that's a focus and the operational tactics that work well for this business and the locations that are affected have really been on our radar screen since we started to see this increase. The other side of it is to ensure that as we are seeing this business that we are getting the appropriate pricing on it for the effort in the value that we are providing with the customer.

As I mentioned we see this as a tremendous opportunity but we do have to be sure that we have really kind of the yield management over the entire situation in mind and we are working towards that. We have worked with some customers since we started to see these increases to ensure that value that we provide is aligned with the prices that they are paying.

But I hope that helps anyway I will stop there.

Yes that does help quite a bit I appreciate that. And this is a follow-up here when I think in relation to what you are talking about there in the growth of that business and we think about sort of the inflationary pressures on your operating expenses should we be more focused on sort of the shipment side versus the tonnage historically little bit more on tonnage but based on what we are talking about maybe shipment growth might be a better proxy.

I just want to get a sense maybe some of the big line items how we should be thinking about inflationary pressures and the difference what we have been used to?

Certainly, the shipments drive our labor. And that's really how that's managed even.

If you think about productivity the shipments is the focus. The shipment levels are the focus there and although we do know that we need to ensure that the revenue per shipment is in the right place for those shipments.

But yes that is something that in the modeling you have to do because of how those activities arise.

Okay. That's helpful.

Thanks so much for the time. I appreciate it.

Thanks Chris.

Great. Good morning.

Judy maybe I could just revisit your last commentary there but noted in your release you are singularly focused on improving customer service so I just want to understand that a bit because I want to understand why aren't you singularly focused on maybe initial environment cutting cost making money given if the pricing is not properly of fixing that part to get the profit up?

Well, I mean I think that you saw our efforts in that area when we announced our enhanced market approach back in November 10 and our report to you there that the cost that went along with creating a better customer experience really are on par or on pace with what we expected them to be so when you - there was tremendous effort that went into unifying our sales force, our yield management function, our customer solutions function and putting together the operations of our asset like business. Those were all moves that you make to enhance the customer experience but they are also cost efficiency moves as well.

So we are focused on that. But we think that - we see them as one in the same.

I don’t disagree, I guess what struck me is the comment that you were singularly focused on improving customer service given all that you were talking about on the cost side I don't know it maybe just singular focus on maybe the advertising you mentioned generally other things that seemed to be a little off but let me jump to the other stuff maybe David question for you, on what has slowed within non-asset side maybe just because you have combined, I can't really see the brokerage the moving, where do you see that slow was it the expedited demand down because of the weak market or is it the brokerage side because of the compressed margin that Judy talked about?

I will just say the expedite side just to clarify there when Judy mentioned that expedite was better it was actually positive even in light of the softer maybe auto factor, but increased miles on the expedite business really if you look at our release you can see that the stats there you can some of the pieces that are in there but with shipments down on the expedite side but really the revenue in total was positive. The truck load dedicated business was obviously the revenue was impacted by the acquisition in 2016 in September but on the truck load side and Judy mentioned this shipments were lower but the other thing and you mentioned this was the compression of the margins which was seen by many of the logistic businesses that have reported ours was compressed as well but probably not to the extend as some of the other companies out there.

The other couple of things that I think were mentioned by Judy as well was the ocean disruption at there and on the impact of some severe weather events on our dedicated business impacted their margins as well. So we had some unusual sort of factors impacting our truck load dedicated market.

Just two quick ones to wrap up because I know it was going to coming off but how do add more work days when leap year was year ago and then the freight flow can you just give the percentage growth in the quarter month by month?

What I mentioned in my remarks were that in January tonnage decreased 1.1% and decreased 0.8% in February and decreased 0.3% in March and then we are seeing an increase in April year-over-year. Those are all year-over-year comparison.

And Ian on your work day question I mean Easter, you got the Easter impact there -- we do make adjustments for that because Good Friday is not, there is not as much business that day.

There is something that I want to add to the whole asset like conversation. I really, we really feel good about the opportunities that we continue to have within our customers and then really even customers that aren't currently our customers.

We have a set of service offerings there that are really working well together when you consider the truck load brokerage piece, the dedicated piece that we have now bought and the expedite piece we have a lot of knowledge there and we have some unique offerings that we are able to present to customers when we are combining some of those services. So we are getting the LNDS acquisition under our belt.

And we are addressing some of these macro issues that we have had that impacts on the business but we are pleased with the service offerings that we have there and our sales forces is very focused on that opportunity.

Appreciate the time and insight, thank you very much.

Thank you.

Thank you operator and everyone good morning. I wanted to go back to a little bit of those e-commerce shipments that you guys talked about.

Can you give us a sense of what percent of your overall shipment count that e-commerce are, I think that might help us frame how we model it going forward from maybe potentially increased cost associated with those shipments?

My memory on that David is actually looking for the percentage for me, but it's around I want to say 15% of our business is residential deliveries something like that and so but as we noted it's increasing when you have a 40% increase in those shipments in the quarter that's a major factor. The other thing to note is that increase came from about 20 customers so it's not one customer it's coming from a number of customers we are known for expertise in this area because of our UPAC moving business.

And the management that we have over those shipments, the visibility that we give our customers and the different service level offerings that we can provide. So but these are clearly small shipments to us but they are characterized more as heavier shipments for a consumer and I think it just speaks to the consumer getting more comfortable having those kinds of items delivered to their homes.

Yes Jason just to give an example some of the commodities we handle fitness equipment, gun size, size for valuables office equipment, TV appliances those are some of the commodities that we are handling with those shipment.

I understand and I know you have one of your competitors I guess increasing their advertising for one of their own moving businesses as well. When you look at this market in particular, since it is growing so much and I think impacting some of your results you kind of talked about how you are seeing 2.9% pricing, is the pricing market in that whole moving business is that more aggressive than the rest of your business I am just trying to get a sense of are you guys able to cover the increase cost associated with your network moving towards more home delivery?

Well, first of all I think percentage that you quoted on our contractual increases is 3.9 not 2.9 just to clarify that.

I am sorry, I misspoke, it's 3.9.

Right. And in certain cases this business that we are talking about is contractual but you also have certain spot business associated with this business as well and what I would suggest to you is it depends on the customer whether we are satisfied with where we are from a profitability standpoint, some customers we have achieved that level of profitability that we desire.

Other customers because of what we are seeing we have some work to do to try to achieve that level of profitability.

I will get back in line before David hells at me.

Okay. Thanks.

Morning Judy, morning David.

Good morning Brad.

Morning.

Judy I know we talked about assets like before and the margins you guys are generating there I know it's in growth mode but is there any way we can not necessarily pin you down but what will you think will be seeing kind of peer average margin in the asset like business once all this sort of growth starts to settle?

Well, we don't know what year that will be because we know that as long as we see the opportunity we are going to invest in it. I think right now in our truck load brokerage business we have about 40% of our people that are handling customers don't have that second full year of experience yet which really doubles their productivity and which helps us on the margins and we have acquisitions that we are absorbing, we are giving to the point where I think the [indiscernible] acquisition which is primarily down at Texas is absorbed and we have people on the same systems and managed with the kind of the same roles that we have always had in our Portsmouth operation.

So we are making progress on that front but our goal is to achieve those best in class margins that other logistic companies that are in similar business to us have. Now, I do think that you have to keep in mind the mix of things within those margins.

We if you look at what we are doing we have got the expedite side of things which has better margins we have truck load brokerage which I think we all know what those average margins maybe somewhere in the 15% range for most companies and then we have the truck load dedicated that are perhaps in that same range or maybe even for some of the competitions slightly lower. But if you look at where we were for the quarter we had above 20% margin on that business.

So that's I think good news so what we are talking about is getting those cost items that are below that which are the people cost to their most efficient place and we have the ability to manage and monitor those activities see where we have gaps go back and make changes in the approach that people are taking. We are working on technology enhancements that will create efficiencies in that business and have more automation of certain, I guess actions or transactions and then we also have some of the roles when we are looking at their productivity we have certain activities that are for instance, in the carrier finding side of things that we have peeled off some of the more routine administrative responsibilities into another group of employees so that those carriers finders can be more efficient.

So there are a number of things that we have going on there and when I look out for that business I see some encouraging sign that we are better able to handle those costs. But what it starts with is a better net revenue margin on those dollars of revenue I think than average.

So that's a good place to start.

Got it and just maybe for my quick follow-up for David. I hear you on the net revenue margins but just to be clear make sure we are talking about the same thing getting to sort of 5% EBITDA margin that's what you are talking to in that?

Yes absolutely. Yes.

All right. That's it from me.

Thank you.

Okay. Thank you Brad.

Yes good morning.

Morning David.

Humphrey hope today.

Sounds like doesn't it.

You have a reputation sir. Anyway just you talked a little bit about ABF on first penetration side, it’s been an issue last couple of quarters is up against 17% and only 6.5% increase in shipments volume was there anything what's going on there how do you describe the PT environment, is this permanently higher level of PT on purpose that we should see or what do you expect for the rest of the year?

Well, a couple of things. It's good to look at that line item along with the salaries wages and benefit line item which you see down for the same comparison.

The reason I say that is really two fold one is on the line-haul side we are managing our empty costs well and what you see is a utilization of rail, I think there was about 15% something like that and again the net results on our line-haul operation was a positive for the quarter. So that's one element.

The other I talked about a little bit when I was talking about the residential deliveries because we saw this tremendous increase in residential shipments and in a first quarter even rolling out of last year somewhat unexpected and somewhat uneven in our business you always have to boil it down to what's going on at the given locations and if you looked at certain locations that didn't have the manpower to give the customer service that we offer we had to use cartage agents to be able to help us deliver that. Now we have already taken some actions to have better manpower in some of those locations where we had this issue and so I am encouraged that we are going to be seeing reductions in this, what I call the city cartage cost.

But we will continue to effectively use purchase transportation both with rail and truck load carriers as allowed under the union contract as options for optimizing our cost from the line-haul standpoint.

From the PND standpoint I would think that cartage agents maybe had been advantageous in some markets but is there anything in the union contract restricting you from increasing the use of cartage agents on a broader scale?

No. Really we have flexibility there.

I think really our issue more in the contract I mean it's not the contract, it's really more just the planning of these I’m going to characterize this as surges but only because it's happening on an uneven basis on a month-by-month basis. If we can have a better planning scenario with our customers we would be able to plan the best outcomes in these given markets.

And to the extent that we can use our people to make those deliveries and it's a good answer from a customer standpoint it meets the service requirements and that sort of thing that's what we will do but being able to plan better around that is really where the answer lies on the operation side. And then if it's a difficult situation with a particular customer we have to build in to our overall pricing and arrangements within to better address it if we are not able to better plan for it.

Okay. Thanks.

Thank you.

Thanks Dave.

Hey thanks. Morning everyone.

Good morning Scott.

Judy. The 2018 targets you laid out for us I guess a little over year ago do you feel like you still minus state to that or do you think we need to push out the timing another year or two to get there?

Well, we certainly haven't made the progress that I would like to make on those some of it I think is macro related but there is a portion of that that is execution related within our team and we are very focused on that so when I look at those relative to where we are now we got a lot of work to do to achieve that so I don't want to say that I am discouraged by the business because I am very encouraged by the business and particularly on the asset based side I don't know that we have ever had a longer list of technology enhancements in that business that could produce positive results than we do now and so we have some encouraging things there but our progress has been slower and therefore perhaps the right thing to do is to push that out a little bit. We haven't officially done that but that would be fair.

Okay and then I want to ask about the contract with the team serve, I think we are kind of less than a year out now and to the extent that you want to can talk about it a little bit maybe you could layout some, if you are comfortable layout some goals forward. I know last cycle you got concessions which was unusual to past cycles is this the environment where you think there is potential for additional concessions or is that a unique circumstance last time and not something that we should be counting on again?

Well, first of all it's really too early in the process to make any kind of comments or kind of projections over where things will land because we really don't know. What I will say is that from a timing standpoint as we get towards the end of this year if we are on a typical schedule to what we have been on in past negotiations you might see us exchange proposals, initial proposals towards the end of the year and then get into the negotiations early in 2018 with the goal of having everything wrapped up by the end of March.

But even that we really can't say for certain because we haven't agreed to the schedule yet with the team serve leadership. So anyway just kind of premature to get into any kind of conversation about that but I appreciate the question and I understand where it comes from.

Okay and then just one just real quick housekeeping thing just because there is a lot of noise in the number with the big change in weight-per-shipment what do you think is the true kind of pricing number was this quarter if you would adjust for fuel and month of fall and weight-per-shipment?

I think on the LTL side it's probably low single-digits so I hope that helps.

Okay. Thanks you guys.

Great. Thanks and good morning.

Hey Judy good morning. Can you talk a little bit high level how the residential delivery fits in with the more traditional LTL network?

I mean is that more of a revenue opportunity for ArcBest or is it also density opportunities to move just more volume to your service center network. How do you think about the real opportunity there?

Is it more top line growth versus kind of also large density part of the business?

Well, I think its top line for sure. But from a margin standpoint the value that is provided to a customer by handling that type of shipment is there and so we believe that the profit margin should be there and that's sort of regardless of what density you are able to achieve with greater volumes of the shipments.

Now we are starting to see a good level of the shipments and it doesn't really work to kind of combine that with what we do on the residential delivery side for our moving business exactly so you really kind of have to think of it as on its kind of its own thing relative to that moving business even though I bring that up a lot but it's because of our expertise that we have in handling those kinds of situations with consumers. So but as we have grown with some of these customers in certain markets we are seeing some ability to collect these shipments and with our street optimization project that we are working on that helps us with appointment setting, and route optimization we should see some better results out of our PND cost.

The 20 customer that you mentioned that are driving a lot of these residential delivery growth are you dealing traditional LTL shipments with those customers or are you doing truck brokerage or other services with them as well?

The answer to that is all of the above probably but we are doing LTL what you would call regular LTL business with them and so we have that too. But we do some interesting combinations of things with our truck load brokerage service offerings and our dedicated offerings involves.

Okay. I'm not afraid of Humphrey's, I'm going to try and speak one more in here.

And as David Cobb mentioned the 500 basis points and 600 basis points of margin improvement into the second quarter, there was also some commentary in the release about benefits on the maintenance side from new equipment coming in, it's just a quarter where we should see a traditional sequential improvements, or there are some things that we should think about in the positive negative side for the margin and progress into 2Q. Thanks.

Well, I think for the most part, as you move into the second quarter, it should be the kind of the normal things are occurring that we don’t forecast those numbers, we just give them kind of for historical context of what we can typically do. I think we thoroughly mention the technology investments that we're making and we're going to be continuing to make those.

They were there in the first quarter and some of the projects that we're working on, there may be more cost on those. In the second quarter we are hoping as we're taking delivery of the new equipment that and we get that into particularly and to our city operations.

What happens to us is we take delivery of new equipment, it goes into the road and then we transfer road to city and when we do that, we're able to take out some of the oldest city units that we had and those were a problem in the first quarter. We had an increased cost of about $2 million attached to those.

And so, we're looking forward to having them out of the system. So, that should help.

I think, right now, we're better managing our cartage cost that it remains to be seen how that goes in May and June as things get busier. And so, those are some things that are on my mind as I'm thinking about the sequential comparison.

You're off the Christmas card list.

I'll do math. I've got three more quarters to get back on it, David.

Thanks a lot, guys.

Thank you.

Thanks.

Great. Hey operator, great job for announcing that last name, I know it's not easy.

That was. Good morning.

Hi guys, thank for taking my questions. Good morning.

So, you mentioned that the growth, 40% growth in residential deliveries, guess was broad based in terms of 20 or so customers. Were all those customer volumes up at those type of levels or was the growth maybe just kind of more focused on one or two customers.

I was just trying to decipher the breadth of customers against the breadth of the growth.

Well, there are probably one or two customers that are driving more of that growth. But it is broad based.

I mean, it is certainly the case that we have. One of the reason we're giving that figure is because we really felt like the focus would be on one or two customers and it really is coming to us from a number of places.

Okay. So, just kind of in that context.

I mean, I wanted to ask just a little bit more color around what's behind some of the operating stats, I mean, shipments kind of have outperformed the overall industry quite dramatically in the first quarter. Tonnages lag, revenue per shipments have lagged.

And you kind of addressed why that happened but given I guess the magnitude of the relative performance, I'm wondering if there was just more of a strategic pivot towards more e-commerce or residential type shipments, and if that's the case, I'm not sure if it is, but if it is the case, can you just kind of explain the economics of the business versus more industrial type businesses. You kind of touched on it previously but what I'm asking is is that is there any structural reason whether it's a little bit more competitive or the cost are higher, are there any structural issues or reasons that the margins in that business could be a little bit different from the more typical type of industrial business that you do.

Well, I mean I think we have 35,000 to 40,000 active customers and we see at different points different mixes of things. I can tell you this, we did not go actively speak this increase in residential shipments, as a strategy.

But what our strategy is is to work with customers who value our high level of service and to do things with them that help them grow their business but then also we think in that helps us to achieve the profit margins that we expect to achieve. And that could be an industrial customer, it could be a customer that requires this residential home delivery or it could be and maybe it's more often being a customer that commands multi-service supply chain solutions.

And so we're managing all of those. But are we averse to any growth with an industrial customer to the kind of the favor of like residential consumer?

No, absolutely not. In fact, we like that this is really well.

But I think one of the things that we don’t with that we haven’t yet talked about on the call in the first quarter, is some degree of excess truckload capacity and our people who quote that business, they are on the market, I mean it's spot quoted business and its business that we will not reduce our prices to a level that doesn't make sense for us from a profit standpoint. And a competitive market when I think the GDP growth was the worst in three years and then we have this capacity that serve in the truckload sector that is business that's harder for us to do with our cost structure.

And so, that plays a role in the results that we have as well.

Right. Okay, that's helpful.

Just one quick one. You mentioned weather earlier in the call.

And I just want to understand as we move from, if there is a way you can kind of talk about what cost items or the amount of total cost in the quarter that maybe you would characterize as atypical and not necessarily related to the cost structure relative to the mix of business. But just kind of extra money that you had to spend that you wouldn’t normally because of various one-off items in the quarter.

So, we can just get a sense of maybe what the underlying profitability is?

Well, where we mentioned weather was in our truckload dedicated business that's in the asset-light side and that is really a company that we acquired. What we were talking about was that the margins, operating margins for that business didn’t meet our expectations.

But Northern Nevada had the most precipitation ever. And so, we're actively watching this company that we acquired that's based in Reno and looking at what we hope to see and didn’t see it and where we saw the impact was in the net revenue for that revenue and that revenue and then also there were below the kind of the net revenue line you would see detention cost or not detention, that lack of utilization cost associated with some of the trailers and equipment that we had that we had parked because we couldn’t handle the customer business and that sort of thing.

And so, it really we mentioned it because on the asset-light side, if we had not had that issue and we hadn’t had the basically the lingering impacts of the Hanjin bankruptcy on our ocean shipping business, we would have had a million dollars more in operating income from that business which I think would have allowed us and you to feel better about how we performed in that asset-light category this quarter.

Got it. Okay, that's very helpful.

Thanks for answering my questions. Have a good weekend.

Yes, you too.

Thanks, good morning Judy, Dave.

Good morning, Ravi.

Hi, Ravi.

Hey. So, just looking at the environment out there, does this want to make you look for more opportunities and the cost side, maybe more streamlining and can you remind us again where you are with the corporate realignment that you announced a couple of quarters ago?

Yes. I mentioned this earlier.

On the cost side, we are on pace with what we said we would save. I think we talked about a $15 million savings kind of on an annualized basis and much of that was in place as we had different software and things that we were writing off because of the new structure.

But what we're continuing to monitor is the headcount side of that and we are right where we want to be with respect to that. Yes, I know it's difficult to see because of all the different items that were affecting us this quarter.

But we're very pleased with where we are on that. And your first comment I think is right, is yes, you constantly look for ways to be more efficient in the operation.

And there is a number of ways to do that but we're in constant pursuit to that. One of those is the deployment of technologies that allow people to handle their task more efficiently and we have a number of those ongoing and hope to see the benefit of them later this year.

Got it. And this is follow-up of that.

A bigger picture question, I mean are you happy with the portfolio strategy here. I mean, is this an environment where multiplatform strategy is the right way to go especially with kind of e-commerce being the double edge sword of strong volume growth but maybe tough pricing.

I kind of just given the environment of the asset-light side kind of go into that 50/50 asset-heavily, asset-light and is that sort of the right charge.

I believe it is. I spent a lot of time with customers during the first quarter and there is not a single conversation that I had with the customer that was oriented toward one service offering.

If we're not in a conversation that involves multiple service offerings, we're not in the conversation that's going to help them with their supply chain challenges.

Got it, understood. Thank you.

Yes.

Hey Laila, we've got time for one more, we got a follow-up I think and then it'll be the last one.

Thank you, David, very much for the opportunity for the follow-up.

You're welcome.

Judy, this has came to mind that as I heard you're kind of answering some of the other questions and I think there's been a lot of attention on maybe a changing mix of business within your LTL network. And I know you guys have maybe warmed up to the idea of dimension, do you think any investment in sort of dimensioning technology would help you as your mix of business is changing at a fairly rapid pace.

Or could you just give us an update on your thoughts on that?

Well, we have been dimensioning nearly all of our freight for many years, well before this whole conversation about dimensioning technology really arose within many of our competitors. So, what we feel like is the right answer for us is to deploy dimensioning technology that doesn't cost us to be less productive than we are today, just as a result of that.

Many of the competitors as I understand it are putting in place static dimensioners which cause obviously some productivity in efficiency when you're deploying that. For us, because we were fairly accurately dimensioning freight prior to that, the idea that you would adopt that same approach really result in a worse answer for us.

And we piloted a number of things that are available in the market place. So, what we're waiting for is a better answer and we're starting to see some of that come about.

So, one compelling technology that surfacing at this time is in motion dimensioning which we really feel like that has more merit than the handheld or the static dimensioners. So, I hope that provides some color for you but we know based on our own testing that what we've been doing is not causing us to be somehow disadvantaged, I think what you've seen is now a recognition of having that measurement practice in some of the competition.

All right. If you don’t mind, let me maybe ask a different way then.

With this sort of changing mix dynamic, have you noticed any incremental or exponential growth in what sort of revenue you generate are you waiting at the research department?

We have always had a good amount of additional revenue that comes from that but it's pretty steady. It's increased a little bit maybe but it's pretty steady.

Okay, all right. Well, that's information.

Yes, we do deploy a way in research folks in all of our major facilities, so.

Okay. Thanks, Judy.

Okay. Thank you.

Okay. Well, I think that could finish our call.

We thank you for joining us this morning. And we appreciate your interest at our best.

This ends our call. Thank you very much.

Thank you.