Q2 Earnings Roundup: Anywhere Real Estate, Ares Management, and ArcBest Navigate Market Challenges

Earnings call: Anywhere Real Estate reports steady Q2 revenue, raises savings goal By Investing.com

Anywhere Real Estate Inc. (NYSE: ARE), in its second quarter 2024 earnings call, disclosed a consistent revenue stream of $1.7 billion, matching the previous year's figures, and an operating EBITDA of $139 million, marking a $13 million increase from the prior year. The real estate company announced an uptick in its full-year cost savings target from $30 million achieved in the quarter to an anticipated $120 million. Transaction volumes grew by 3%, with a notable 8% price increase in their portfolio, and the company generated $83 million in free cash flow, excluding litigation settlement payments. CEO Ryan Schneider highlighted strategic moves including the expansion into luxury real estate, franchise growth with 15 new franchisees, and the implementation of AI solutions to streamline operations. Anywhere Real Estate Inc. (NYSE: ARE) showcased resilience in their Q2 2024 earnings report, maintaining steady revenue and experiencing an uptick in transaction volumes and prices. As the company navigates the dynamic real estate landscape, it's worth noting some key metrics and insights from InvestingPro that may offer a deeper understanding of its current market position and future prospects. InvestingPro Data shows the company's market capitalization stands at $481.81 million, reflecting the market's valuation of the business. Despite recent challenges, Anywhere Real Estate has managed to generate a strong free cash flow yield, as indicated by a Price / Book multiple of 0.3, which is considered low and could suggest the stock is undervalued relative to its assets. This aligns with the company's reported free cash flow of $83 million (excluding litigation settlement payments) and could be a sign of underlying financial health. The company's P/E Ratio, at -9.76, underscores that it currently isn't profitable; a sentiment echoed by the InvestingPro Tips, which note that analysts do not anticipate the company will be profitable this year and that it was not profitable over the last twelve months. This may raise concerns for investors looking for immediate earnings but could also indicate potential for those willing to invest in a turnaround story. InvestingPro Tips highlight that the stock price has experienced significant volatility, with a substantial hit over the last week and six months, reflected in price total returns of -8.84% and -40.68%, respectively. However, there has been a strong return over the last month, with a price total return of 32.01%, which might attract investors looking for short-term gains amidst the volatility. For investors seeking more comprehensive analysis, InvestingPro offers additional insights, including 15 more InvestingPro Tips that could help in making a more informed investment decision. These tips provide a deeper dive into metrics such as valuation multiples, industry comparisons, and liquidity concerns, all of which are crucial in understanding the full financial picture of Anywhere Real Estate Inc. The insights provided by InvestingPro, coupled with the company's strategic initiatives in luxury real estate and franchise growth, paint a picture of a company that is actively working to strengthen its market position despite some headwinds. For readers interested in a more detailed analysis, they can explore further by visiting the InvestingPro platform for Anywhere Real Estate Inc. at https://www.investing.com/pro/ARE. Operator: Good morning and welcome to the Anywhere Real Estate Second Quarter 2024 Earnings Conference Call via webcast. Today's call is being recorded and a written transcript will be made available in the Investor Information section of the company's website tomorrow. A webcast replay will also be made available on the company's website. At this time, I would like to turn the conference over to Anywhere Senior Vice President Alicia Swift. Please, go ahead, Alicia. Alicia Swift: Thank you, Eric. Good morning and welcome to the second quarter 2024 earnings conference call for Anywhere Real Estate. On the call with me today are Anywhere CEO and President Ryan Schneider; and Chief Financial Officer Charlotte Simonelli. As shown on Slide 3 of the presentation, the company will be making statements about its future results and other forward looking statements during this call. These statements are based on the current expectation and the current economic environment. Forward looking statements, estimates and projections are inherently subject to significant economic, competitive, antitrust and other litigation, regulatory and other uncertainties and contingencies, many of which are beyond the control of management, including, among others, industry and macroeconomic development. Actual results may differ materially from those expressed or implied in the forward looking statements. As we've shared before, we have two large expected one time free cash flow headwinds. The first headwind is our approved $83.5 million litigation settlement and a reminder that $10 million of that was paid in 2023. In the second quarter of 2024, we paid $20 million of this, which means there is 53.5 million remaining, which will be due when appeals are resolved. The appeals timing is uncertain, depending on developments in the proceedings, and could be delayed until 2025. Second, the 1999 sell side legacy tax matter, approximately $40 million is due shortly after notice is received, which has not yet happened but still anticipated in 2024. We previously estimated over $100 million of these free cash flow headwinds in 2024, and our current best guess is approximately $60 million for 2024. For further discussion of these matters, see our SEC periodic reports, including the Form 10-Q we filed this morning. Our free cash flow estimates referenced do not include any potential impacts relating to the implementation of industry settlement practice changes, which remain uncertain. The reference to core franchise in these remarks is the franchise segment excluding relocation and leaves. Important assumptions and factors that could cause actual results to differ materially from those in the forward looking statements are specified in our earnings release issued today, as well as in our annual and quarterly SEC filings. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, August 1, and have not been updated subsequent to the initial earnings call. Now I will turn the call over to our CEO and President, Brian Schneider. Ryan Schneider: Thank you, Alicia. Good morning. Anywhere Real Estate delivered powerful financial results in the second quarter. We are demonstrating success delivering on what we can control, leveraging our strategic strengths across advantaged areas like franchise, luxury and scaled ancillary services and building financial octane for the future. Real estate remains in a tough part of the cycle. Macroeconomic uncertainty continues to impact housing, including elevated mortgage rates and very limited supply, putting 2024 on track to be another historically low year for home sale transactions. And the practice changes coming out of the industry wide litigation settlement are creating uncertainty. While the entire industry faces these two uncertainties, we are using this time of change to position us for growth and further differentiate versus the competition. During the second quarter of 2024, we delivered $1.7 billion of revenue and $139 million of operating EBITDA. We realized approximately $30 million of cost savings and increased our full year savings target to $120 million. We grew transaction volume 3% year over year consistent with the market results. The dynamics we are seeing include continued unit transaction weakness driven by the combination of high interest rates and the lock in effect hurting supply. Units declined in about 40 states, including many of the largest like California, Texas and Florida. There was about 8% price growth in our portfolio versus the prior year, with more than 90% of the country seeing price gains and over 10 states having double digit price growth, including some of the largest like Florida, New Jersey and California. We generated $83 million of free cash flow in the quarter, excluding the $20 million litigation settlement payment. And we received final court approval for our nationwide settlement in the sell side antitrust class action cases. We are incredibly focused ensuring our agents and franchisees are prepared for the upcoming industry practice changes and are best positioned to win in the market. Turning to our strategic progress in the quarter, we continue to leverage our competitive advantages to transform Anywhere Real Estate with strategic investments to drive growth and streamline operations. Some examples include, we are disproportionately invested in luxury and we love our luxury leadership results. Our Corcoran and Sotheby's International Realty brands volume meaningfully outperformed both the market and our book, including having positive year over year unit growth, and our Coldwell Banker Global Luxury agents also substantially outperformed the market and our book in both units and price. We had over $310 million plus transactions in the quarter with our volume from $10 million plus deals up 41% versus the prior year. This includes multiple record sales in different geographies, a number of iconic properties and 15 sales above 50 million. And we currently have over 1,000 $10 million plus listings and over 25 listings above $50 million active in our portfolio. We continue to strategically grow our great franchise business. We expanded with over 15 new franchisees joining us in the quarter, including in high growth geographies like Florida, North Carolina, Tennessee and Colorado. Each of our six brands added new franchisees and we are excited to continue growing this business we love. We expanded our upward title JV offering two franchisees into its 6th state and we have five more states in the pipeline. We love the upward title momentum in the business because it opens new earnings opportunities for our franchisees. It enhances our value proposition, deepens our relationship with participating franchisees and we like the economics. We remain relentlessly focused on simplifying, automating and streamlining our operations for speed, quality and cost benefits. You can see that in the progress of our cost agenda with $60 million realized year to date and thus increasing our annual target to $120 million. And as we told you last quarter, we are integrating and digitizing our brokerage and title operations. This benefits agents and consumers, makes it easier to capture title and mortgage economics, and contributes to a lower cost base. Since we last spoke to you, we've doubled our implementation to two thirds of the country and we will finish our national rollout later this year. And finally, we are actively engaging and executing our AI agenda to drive innovation, speed, quality and lower costs across many parts of our company, with recent successes deploying new generative AI solutions in marketing and in multiple operational areas. So, for example, we recently introduced new AI capabilities to listing concierge. Using photos from the home, our generative AI tool automatically drafts listing descriptions, photo captions and property tags for the over 50% of our Coldwell Banker Realty agents who utilize this great product. And our brokerage operation team that processes transactions receive around 15,000 documents every single day. Leveraging generative AI, we are automating much of this work, including opening emails, recognizing documents, reviewing them and applying them to the appropriate transaction. This substantial automation not only lets us accomplish these tasks faster, but lets us operate 24/7, delivers better quality with meaningfully lower error rates, and critically lowers our costs. I'm excited by our strategic progress as we invest in the business for the future. And remember, our other top capital allocation priority is reducing debt. I continue to believe the medium term outlook for housing should be quite strong, fueled by demographic trends and a continued desire for homeownership. Anywhere has a proven track record of delivery and we are seizing this moment to further transform our company to capture greater strategic and financial results in the future, especially in stronger housing markets. Now, before I turn over to Charlotte, I'd like to discuss the August 17 industry practice changes mandated by the National Association of Realtors Litigation settlement. While we expect there to be challenges and uncertainty as these complex changes are implemented, there is an opportunity for Anywhere and our agents and franchisees to embrace the future with confidence and differentially succeed, something we've been focused on delivering for our agents and franchisees since we announced our settlement in Q3 of 2023. One of the key changes is mandatory buyer agreements. We support these agreements for the transparency they offer consumers. Anywhere is committed to a thoughtful rollout of buyer agreements, with two core concepts guiding our approach. The first is simplicity. Buyer agreements must be clear, concise and free of legal jargon. So, for example, if the agreement cannot be understood and executed electronically in just a few minutes before showing a home, it's too complex. The other principle is flexibility. Consumers and agents will likely want different options for buyer agreements depending on the scenario. For example, we envision consumers and agents wanting a buyer agreement that just covers showing a home, or a buyer agreement that helps a customer purchase a specific home, or a buyer agreement that covers a multi month journey to find the right home for a family. And to this end, we're providing multiple buyer agreement templates so consumers and agents can select the version that best suits their needs. Another significant change is the display of buyer broker compensation. We believe voluntary offers of buyer broker compensation help sellers secure the best offer for their home and the highest certainty in their transaction. We encourage agents to educate sellers on their options and as always, to act in the seller's best interest. And to date, we see sellers in the market continuing to see value in offers of buyer broker compensation. And we will be displaying offers of buyer broker compensation on our owned brokerage websites. Now remember, these changes affect everyone in the industry, and that means opportunity for those of us who can best embrace the new reality and help agents and franchisees navigate it successfully. And we believe we're in a unique position to do that the best. We have an advantage because of our first mover decision to settle commission related litigation last year as we've been implementing the changes for longer than others and we have a nationwide network of agents and franchisees that provide us insights on how these industry practice changes are playing out differently across both geographies and price points. Having more data and insights enables us to adjust faster and adopt best practices better than our competitors who don't have our scale. We're leveraging these advantages to cut through the noise and to clarify confusion. Frankly, the industry needs more leadership helping real estate professionals navigate these changes. And that's why Sue Yannaccone, the CEO of Anywhere Brands and Advisors, and I recently launched Anywhere Voices. A new publicly available series to provide guidance to the industry and its professionals as we all navigate the future. And we delivered our first session in mid-July focused on buyer agreements. I remain incredibly proud of the excellence our affiliated agents, franchisees and employees have demonstrated during this ongoing industry uncertainty. While the road ahead may present challenges, we believe our agents and franchisees will be best positioned to succeed as we lead real estate to what's next. With that, let me turn over to Charlotte. Charlotte Simonelli: Good morning everyone. Our second quarter financials demonstrate our continued resiliency with volume growth, strong profitability and solid free cash flow generation. We believe Anywhere's unique strengths and continued holistic financial discipline drive differentiated performance versus our competitive set and will enable us to emerge even stronger when the housing market improves. I will now highlight our second quarter financial results. Q2 revenue was $1.7 billion, essentially flat versus prior year as transaction volume growth was offset by softness in relocation. We are encouraged by two consecutive quarters volume growth and are optimistic for housing to recover. Q2 operating EBITDA was $139 million, an increase of $13 million versus prior year due to 3% transaction volume growth and lower expenses across the enterprise. We delivered approximately $30 million of cost savings in the second quarter and are increasing our full year cost savings target by $20 million to $120 million this year. We continue to prudently manage our cash. Cash on hand at the end of Q2 was $128 million and Q2 free cash flow was $63 million. Free cash flow excluding our partial legal settlement payment, was $83 million and if you exclude timing on our securitization working capital, free cash flow was about $100 million, which was in line with Q2 2023 on a like for like basis. During the quarter, we paid down a portion of the revolver balance to end the quarter at $410 million, which now sits at $400 million. Now let me go into more detail on our business strategy segment performance. Our Anywhere brands business, which includes leads and relocation, generated $159 million in operating EBITDA. Operating EBITDA decreased $5 million year over year, primarily due to lower client volumes in the relocation business. We love our core franchise business and its margin stability over time, and in Q2, our core franchise margins were approximately 73%, our strongest performance over the last seven quarters. Our Q2 Anywhere advisors operating EBITDA was $4 million, up $14 million versus prior year due to higher volume and lower operating and marketing costs. Commission splits in Q2 were 80.5%, up 40 basis points year over year. The increase was attributable to higher brokerage volumes, particularly in higher split rate markets such as California. Agent mix, as our top agents continue to take greater share of transactions and the remainder of the increase about one third coming from other non-core items such as lower new development business and lower company generated leads due to the softness mentioned in the relocation business. These increases in splits were partially offset by reduced amortization of prior recruiting and retention payments and some reclasses for one of our brands. The average broker commission rate declined in Q2 versus prior year for both brands and advisors by 4 and 7 basis points, respectively. The decline is driven in part by the meaningful outperformance of our luxury portfolio, especially the substantial volume growth Ryan mentioned on transactions north of $10 million, many of which we spoke about during our Q1 earnings call. And we love the economics of these high end transactions independent of their effect on ABCR. The decline versus prior year is also driven by a tough prior year comparator as ABCR increased in 2023. Other than the luxury effect, our Q2 results are similar to what we saw in Q2 2022 and remember, ABCR fluctuates by quarter and annually depending on the market, price mix and geography. Anywhere integrated services generated $9 million in operating EBITDA in Q2. Operating EBITDA declined $1 million year over year due to a decrease in the mortgage JV earnings. Title EBITDA would have increased slightly excluding the mortgage JV. Title purchase closings were down 1% versus prior year in the quarter, which is an improved trend versus Q1. Moving on to cost, we have delivered approximately $60 million of cost savings year to date and are increasing our full year cost savings target by $20 million to $120 million this year. The increase is driven by our relentless focus on driving efficiency in our business, and we continue to focus on streamlining processes, reimagining roles and footprints, and using generative AI to automate certain tasks. Ryan shared examples of where we are leveraging AI and let me remind you, this can meaningfully improve the speed and quality of our operations and reduce our costs. We're excited by these results and also by the opportunities that remain in front of us to drive further cost savings. And to give further clarity on our cost structure, here are some additional details by reported business segments. The brand's business segment, with its high margins is approximately 75% fixed and 25% variable. Our owned brokerage business is approximately 85% variable including commission expense and 15% fixed. We have driven the fixed percentage down 5 percentage points in the last five years as we continue to optimize our ways of working. Title expenses are approximately 70% fixed and 30% variable. All that said, we are benefiting from improved margins on each of these businesses year over year in spite of continued historically low volumes which further inflate the fixed percentages. And we believe as we continue to drive cost savings, this will further favorably impact our results, especially in more normal housing markets. Our focus on optimizing our balance sheet is always a priority. We will address our term loan A by Q4, which will be approximately $190 million at that time. We are evaluating many options, including repaying it with a combination of our revolver and free cash flow or refinancing it with other debt. Our free cash flow delivery is quite strong in both good and bad markets given the stability of our free cash flow generation in the last three quarters of each year. For example, in 2023 and 2022, some of the most challenging years for housing in decades, we generated approximately $105 million and $197 million of free cash flow, respectively, before any one time items in the last three quarters of those years and we expect our full year 2024 free cash flow, excluding one-time items to be about $100 million as favorable working capital, robust savings programs and our cash management discipline will help counterbalance yet another tough year in housing. This free cash flow generation is a true differentiator in our industry and gives us tremendous flexibility to continue to invest for the future and reduce debt, which remains a top capital allocation priority. Overall, our second quarter results highlight Anywhere's resilience and strategic focus. We remain committed to driving efficiency, managing costs and optimizing our balance sheet. As we navigate the current housing market, our unique strengths position us for continued success and growth. Let me now turn the call back to Ryan for some closing remarks. Ryan Schneider: Thank you Charlotte. I'm proud of how the Anywhere team is leading and delivering through the challenging housing market and the ongoing industry uncertainty. We continue to seize this moment to further transform our company, leveraging our market leading position including resilient profitability, luxury leadership, scaled ancillary services and some of the most iconic brands in the industry with the best agent and franchise networks. We are executing on what we can control, delivering on our strategic agenda and utilizing our competitive advantages to position us for future growth, to outperform the market and to deliver value for our agents, franchisees and shareholders. With that note, we will now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Soham Bhonsle with BTIG. Please go ahead. Soham Bhonsle: Hi, guys. Good morning. Ryan, I guess first one for you. One of your peers last night painted a picture that suggests that there could be some thought given to sort of managing their inventory more tightly going forward. And you noted your intent to display commissions on your own listings on the website. So I'm just wondering, how does this, in your view, change agent workflow or consumer behavior as we go forward and then maybe just highlight any other way that you're looking to leverage your combined market share on units, which is still the largest in the industry? Thanks. Ryan Schneider: Can you say what you mean by this? I'm sorry, I don't fully understand the question. Maybe you could give it to me again. What is the - Soham Bhonsle: Yes, so I think I'm talking about just inventory being managed more tightly, right, going forward by brokerages potentially. And then how you think just displaying commissions on your website can change workflow for either the agent and then just consumer behavior going forward? Ryan Schneider: Well, look, displaying commissions on our website and our franchisees displaying it on their website and competitors displaying it on their website, I tend to think that's a good thing just because it shares the information that people want out there in the ecosystem. And there was even a push three or four years ago by a lot of constituents in the world to display that stuff publicly, which we've done. And so we're going to keep doing it. So that's pretty easy. Look, inventory is pretty tough out there right now, but we have a market leading position. I think what your question really gets to is, and we'll see, is just bluntly what role the MLSs play in the future. If MLSs don't do a good job serving their customers, then scale companies like us may have other options for how we display and use our inventory. If MLSs do a good job serving their customers, who are the agents, then we may continue as is. But I think that's one of the TBDs of how the ecosystem evolves. And I talked about the complexity of all the industry changes. You have 500 MLSs writing different rules at the moment, which will be an interesting thing to watch kind of play out. But look, we love our advantage position, right? I mean, to your point, if there is a change in how inventory is managed in our industry, we're going to be the number one beneficiary of it because across our six brands and our networks, we have by far the most. So I don't have a crystal ball, but I think we've got a little bit of a track record of being more thoughtful about this than most people, whether it's in terms of how we approach the litigation and the differential success there, or what we're doing now to position our agents and franchisees to do better and kind of what happens with our inventory no matter how the market evolves, we're going to be in the advantaged position with our scale. It's a great topic, but it is wound up in kind of the future of the MLSs. And it's way too early to say what's the winning approach, but we have the asset that you would want, which is the most scale, no matter how that plays out. Soham Bhonsle: Yep. Okay. And then Charlotte on splits this quarter, you walked through the moving parts there, but it was higher than the last few quarters. And so how should we just be thinking about it in the back half of the year here and just give us any other moving parts there. Thank you. Charlotte Simonelli: Yes, I mean, I think we expect the full year to look similar to what we experienced in the quarter. This agent mix thing is a phenomenon that's been with us a while. And then when you add in the results that we had in the quarter with all the luxury over delivery and some of the geography that we saw, assuming those things continue, we expect the full year to kind of look like what we saw in Q2. Anthony Paolone: Thanks. Good morning. Hi. So, Ryan, I appreciate the brackets around how you guys are approaching the buyer agreements. Maybe can you give us an example perhaps of like what an agreement where you're just... the buyer just wants to be shown a house and what that looks like versus some of the other examples you gave. Ryan Schneider: Sure. I'll just kind of go through all three. And again, there's tons of versions of these, but I'll give you one thing that happens all the time, right? Somebody flies down to Florida, wants to see a neighborhood and see some houses, but has no idea where they're going with their life and their future. That probably lends itself to just a showing agreement. You don't have to get into all the compensation and stuff like that. You just agree. Look, I'm going to show you the homes. That's kind of how the world works today. People show people homes and neighborhoods all the time with kind of, no, we'll see what comes of it. But that meets the requirements of the mandatory agreements, but just gives people kind of an easy, flexible way to do it. We call it a touring agreement and you can see people using that a lot. Second is I'm a customer, I know the home I want to actually go after, I contract with the agent, hey, let's go bid on this home. And the nice thing about that is if you're bidding on a specific home, you can negotiate the compensation. But you also know what seller offer of compensation is being given on that home. So you can just write that into the buyer agreement and boom, you're on your way. And then the third is the little more kind of, hey, I know I want a home. It's probably going to be a long journey. Let's do an agreement for 180 days to take me on this journey. And that one probably has a little more flexibility or nuances to it. But point is, I think just we want it to be flexible and simple. And the idea that there's like one agreement that's going to cover all these cases, I don't think it probably works. And that's when you also get into like a bunch of stuff in agreements that don't apply to people and you got to start crossing stuff out. So we're taking this flexibility and simplicity approach, put our agreements to be public, if other people want to use them, that's great, right? And we'll learn from others agreements if someone does a better one. But we just think there's enough difference in how people actually approach buying a home or looking at homes that it lends itself to different types of agreements. Anthony Paolone: I understand. And I mean the showing one sounds fairly simple, like at what point does there need to be some agreement on dollars and cents as to what's actually paid there? Ryan Schneider: Well, everything's negotiable so agents and customers can do whatever they want. But for us, the showing agreement is just how the world works today. And they're probably, I don't recommend agents put a lot of time into compensation for just giving somebody a neighborhood tour or showing one home. But when you get into a here's homes we want to bid on or I want to be in a longer term relationship here, then absolutely, you want the compensation there. And again, like I said, if you know the home, you can go look up the seller offer of compensation. You can put that in the agreement and boom, you're on your way on that side plus anything else you negotiate. And if you're on a longer term one, then you do have to come to an agreement, including what you want to do with seller offers of comp. But it'll be easier, I think, if you know what your customer's trying to accomplish as opposed to a single form. Anthony Paolone: Got it. Understand. And then just my follow up is any color around what, July and August, what the pipeline looks like. Ryan Schneider: Look, July. So I've got the data through July 26, so it's accurate through that. I haven't got the later. Couple things. Look, the real trends are about the same. If you look at the market, units are down and prices are up. The one thing we all got to watch out for is July has two more business days than last year, Tony. So if people don't adjust for that, July actually looks quite strong, units up and price up meaningfully. If you adjust for the two business days, you see this trend of still a struggle in units, but price is still up. So the headline numbers are units up and price up, but the real numbers are unit weakness continuing, but price is up in July. So very similar to the trends in the market that we saw in Q2. Matthew Bouley: So on the commission rates, the seven basis point reduction on the brokerage side and then four basis points on the franchise side, is the difference between those two a good way to think about what the mix headwind was that you mentioned with the higher price transactions? Obviously trying to get a sense of what's happening with core commission rates in the industry. If you could sort of tell on a like for like basis, are you starting to see more transactions occurring at lower commissions, buy side or sell side? Thank you. Ryan Schneider: I think Charlotte covered. Look, the big difference between advisors and brands is advisors skews even more luxury. And you heard the luxury numbers, especially at the high end. And the luxury effect on ABCR was bigger in advisors than it was in brands. But when we look at the data, we don't see any change in seller offers of compensation. We don't see any change in unrepresented buyers. What we did see was a heck of a lot of luxury success and it affected both of our businesses' ABCR. But advisors does skew more luxury, hence the little bit bigger effect. Charlotte Simonelli: So keep in mind what I said about our prior year comparator. Like in our bookers business, last year, ABCR was actually up. And so, in our business, if you look versus two years ago, it's pretty consistent with what we saw then, excluding this luxury effect. Matthew Bouley: Got it. Okay. That's helpful. And secondly, there's a fair bit of talk last night with your competitor around M&A and sort of consolidation towards the bigger players. From Anywhere's perspective, how are you thinking about that now going forward? Is there kind of any limits around how you think about M&A, whether it be either the balance sheet or how where some of these targets may be in the settlement with the NAR process, how that plays into M&A? Just your broader thoughts on that. Thank you. Ryan Schneider: Yes. Look, I mean, I've been public. I think consolidation is inevitable. I think the bigger players, including us, will benefit from that. And it's a little easier probably... on one dimension, it's a little easier on the settlement side because people have started to work out settlements. On the other, there is a lot of industry uncertainty here. But we think it's inevitable. But the big question for everybody is price. If there's one thing you need to remember about us is we are incredibly focused on margin. We're not going to do a bad deal just to show growth. Let's be blunt about that. And the deal's got to be good for both sides. And so we're pro M&A. We think we'd be a bet we'll be a beneficiary of that. We think consolidation is inevitable, but it's got to be at good prices. And just doing deals for deal sake is not part of our gig. So, we'll see what happens, but we're forward and we don't have any restrictions. We got tons of liquidity. I've probably got more liquidity than anybody, is my guess. We got tons of liquidity and we're ready to go for the right things, but it's got to be a good deal. And that's, again, a good deal for me is the bottom line not the top line. I better be creating some value with the deal, not just growing the top line. Operator: The next question comes from the line of Tommy McJoynt with KBW. Please go ahead. Tommy McJoynt: Can you talk about just sort of the process of getting your house into shape for the upcoming business practice changes, thinking about the training programs for your agents, whether or not they've been mandatory, and then just whether is the onus going to be on you as the broker to monitor and force your own agent base to make sure that they're kind of compliant with these new changes? Ryan Schneider: Well, a couple of things. So look, we've got our duty to supervise our agents is a critical thing and we take it very seriously and we apply it to everything. And we're here to support and help our agents whether it's on data security or fair housing or anything else. So this is just another place where, of course we're going to be good stewards of our responsibilities there. We're pumped about our rollout, man, and we think we're in a great spot, especially on a relative basis when we hear the stories from others. And again, part of that is because we saw a little farther ahead, I think, on this stuff than others and have been working on it longer. But we've already got training being rolled out, agents, franchisees, et cetera. We're in weekly kind of communication. Sue and I, like I said, are even going public with some of our thoughts. We want people to know. And we're getting a ton of learning from our nationwide network. There are parts of the market where there have been buyer agreements in place we can share each other's. There are certain markets, by the way, where MLSs have made changes already that we already are learning from and making us better kind of nationally. And so we're really excited about it. I mean, heck, we're doing things like we're telling our agents to invite a friend to some of our training on this stuff because they're not getting what they need from their brokers. So they're coming to our stuff. And that's both a recruiting opportunity but also making the industry better. And then again, we're going to do another one of these Anywhere Voice series, totally open to the public. It'll be in second half of August and we'll take this stuff head on for everybody. So we feel great. And I think we got a chance to have our folks be in a better position than a lot of others and potentially even get some recruiting and everything else from Anywhere's leadership here. Tommy McJoynt: Got it. And just has the process through which prospective homebuyers find and contact agents when starting their home search process. Has that changed much over the last year? Thinking about the dependence on the portals or kind of your own websites generating traffic versus other advertising methods, have you seen much of a change over the past year in that? Ryan Schneider: No, but most people don't find their agents online. Let's be incredibly clear about that. Most people find it through a really trusted referral. That's why the conversion rates on online leads are as low as they are, whether it's for portals or for other companies. But no, we have not seen a change in that. Tommy McJoynt: Got it. Thanks, Ryan. Operator: The next question comes from the line of John Campbell with Stephens. Please go ahead. John Campbell: Hi. From a price growth standpoint, obviously advisors and brands, that was well out of the market. You guys have called out the luxury strength. I know you've also got heavy exposure to the higher price western region. That seems like that bounced back a good bit in the quarter as well. But two part question. First, can you maybe unpack the overall price strength across those two components? Which one have the biggest influence? And then secondly, just looking ahead, do you expect kind of a similar dynamic where you feel like you can outpace the market relative to price growth? Ryan Schneider: Yes. So we saw a lot of what you talked about. I mean, we saw literally, like I said, kind of 10 states with double digit price growth. New Jersey, California, Massachusetts had pretty strong price growth, but we even saw it in the Southeast. Georgia, North Carolina had double digit price growth in our book. Florida did also. So we saw a lot of that. And I think there's a clearly a demand supply thing happening out there that does show up on the price side. So what's the second... can you repeat the second part of your question. John Campbell: Just looking ahead, if you expect kind of a similar dynamic, do you feel like you're positioned to outpace the market from here? Ryan Schneider: Yes. I mean, yes, just because of the supply and demand thing. Now, again, I would rather have stronger units and less price growth. I think it'd be healthier for the market and get more people into homes, et cetera. But we have the geographic and then the luxury skew that we've got, and we're getting a benefit from both the strength and luxury driving some of our success there, as well as the geographic thing driving some of the success there that you talked about. And so like I said to Tony's question, again, in July, if you adjust for the business days, we're seeing the same thing, from unit pressure, but our prices are up pretty meaningfully in the first 26 days of July. So we're doing that, and you get these Coldwell Banker global luxury agents and how they're crushing it, and then what Corcoran and some of these international realty are doing, and I think the trends that we're differentiating on will continue. John Campbell: Okay, that's helpful. On the additional $20 million in cost saves. Charlotte, maybe if you could talk to or give some flavor on where you're sourcing those savings from, and then if you could remind us of what your multiyear cost reduction target is and where you expect to be, how much of that you'd expect to capture by the end of the year. Charlotte Simonelli: So where the savings are coming from, I think it lends to what Ryan talked about in the transformation of our business. These are, as we go forward, we're looking to literally transform how we operate. And so this is more about advancing our journey. I think it's exciting, some of the developments in using generative AI. And so basically the extra $20 million is us just trying to pull forward and drive the agenda faster. I think you saw a lot of that last year, too, where we increased our target as the year went on just because we're moving with a little more speed and agility at driving the cost savings, so it's going to hit the same line items that it always does because it's relative to where the costs sit in the business. And if he's speaking about the brokerage and title integration, which is where the majority of the costs are in our business, you can expect that it's going to hit there. But it's exciting because it's a better quality product. It's faster, it's better for the agents. So we're really excited about it. As far as a multi-year journey, you can see what we've delivered over the past several years, and it's on average $100 million or greater. And so we haven't given like a prospective target for the next couple of years. But I think our last five years track record speaks for itself. And being in the two worst housing market years and decades, we're pushing it as hard as we can. Now we have to deliver service and quality, so we're not going to do it at the expense of our business. But while the market is actually softer, we're using that time to actually drive this stuff faster. Operator: The next question comes from the line of Ryan McKeveny with Zelman & Associates. Please go ahead. Ryan McKeveny: Hi, good morning. Thank you for taking the questions. Ryan, I wanted to drill in a little on the, the unit transactions, so down about 5% year over year, but you called out the growth in Corcoran and Sotheby's. So I guess when we think about the brands or the pieces of the business that are down more than 5%, I guess, would you attribute that mostly to just the price point dynamics, geographies, like less luxury exposure? And if not, I guess I'm just wondering, are there opportunities or strategies you have in place to potentially reinvigorate some of the growth within those non-luxury brands that might be on the underperforming side of the scale? Thank you. Ryan Schneider: Yes, it's a great question, Ryan. And look, we love our franchise business, which is anchored in some of our more mass market brands, like Century 21 and ERA and others. But the biggest driver, bluntly, is the price point thing. Right? I mean, our luxury businesses kind of speak for themselves, and they're doing awesome, and they obviously play in the luxury area. But our average price point in some of our mass market brands is more in that $300, 000 to $400,000 area. And if you look at the data that other people publicly put out for the market, that's the part of the market that has the biggest challenges in terms of inventory, in terms of listings, in terms of units, et cetera. And so I actually think that whole segment of the market lags the overall market numbers. And because some of our brands play there, we obviously are subject to some of that effect, and it just plays out with the portfolio dynamics you talked about. But we're excited to do anything we can to grow those brands. And like I talked about, every one of our franchise brands added new franchisees in the quarter, and that includes all of our ones that play at those kind of lower price points kind of thing. Those companies are big participants in the upward title joint venture. That's helping to grow and drive their economics and our economics and then deepen our relationships. And so we love all of them, but there is that market dynamic that right now is, frankly, a bit of a tailwind for us on luxury, even though we are outperforming the competition on luxury, but is a bit of a headwind for anyone playing in that pure mass market area. And it does show up in the mix in our book. Ryan McKeveny: Thank you. That's helpful. And then a more qualitative one. Last quarter you mentioned some single family rental companies partnering up with you to sell some homes directly to consumers. I guess curious, are you seeing that continue and bigger picture is your sense that that's kind of a mixed thing where a single family rental owner is selling to a consumer instead of another buyer because there's just not as much kind of incremental SFR demand? Or is your sense like, is there a bigger macro trend of investors or SFR companies actually looking to meaningfully exit portfolios at this time? Or is it more just repositioning and things like that? Thank you. Ryan Schneider: So I don't pretend to speak for them. You should ask them, obviously. But let me tell you a couple of things. So first off, we like partnering with SFR buyers and sellers because it's a great way for us to help them generate more leads for us, generate more transactions for us, and we have some relationships that are continuing. I met with another SFR prospect CEO it was Monday of this week or Friday of last week, but it was relatively recently and it was last week, was last week. So we continue to actually look into that. Look, I think most of what's happening is not anybody exiting the business. I think it's that they've shifted from selling blocks of homes to other SFR buyers to realizing at today's price points that they're better off selling direct to consumers. That is a different model. That's why someone like us, not just to sell the home, but to do the title work, for example, can be a really good partner. And the sense I get from talking to multiple of them and partnering with a few of them is they've got to kind of continually trimming their portfolio around the margins. They're going to still be buyers, they're going to be sellers. But the numbers add up to a meaningful number of transactions for us to help them with. And we like it as kind of a niche area that we think with our scaled ancillary services, our integrated brokerage and title that we can do a good job for them. And so we continue to like it, but that's how I see it. But again, I don't want to speak for them strategically, but it's more trimming and inflow and outflow than it is anybody exiting the business. Operator: The next question comes from the line of Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone: Thanks. Hopefully I just got two quick maybe follow ups for Charlotte. One, can you maybe give a sense as to what relo revenues were in the quarter? And same thing for the year ago quarter. Just trying to understand what the drag was there. Charlotte Simonelli: Yes. So in the first quarter, relo was down because the prior year comparator was still strong. There were still higher volumes. In the current quarter, if you look at the total reported brand segment, it was a pretty material piece of the decline in revenue. So that's why we called it out. I think the good news is, we're starting to see a little bit of stabilization in that business. But it was definitely a drag on the quarter. Anthony Paolone: Okay. And then just second one. Any forecast for CapEx for the full year? Charlotte Simonelli: Yes, we've tried to be super judicious with our cash. I think you can see how we trimmed it last year. We're probably in line with what we spent last year. Hopefully, it's more of a shift to some of these transformation type projects. A little more on the tech side, but similar to what we spent last year. Operator: Ladies and gentlemen, this concludes today's conference. Thank you all for joining, and you may now disconnect.

Earnings call: Ares Management declares increased dividend, sees growth By Investing.com

Ares Management (NYSE:ARES) Corporation (ticker: ARES) reported robust second-quarter earnings, highlighting a significant increase in assets under management and strong fundraising results. The company announced a third-quarter common dividend of $0.93 per share, up 21% from the previous year. With $26 billion invested in Q2, Ares Management achieved their second-highest quarter on record. The firm's assets under management have reached a record $447 billion, representing an 18% increase year-over-year. Fee-related earnings grew by 22% due to strong deployment and fundraising activities. Ares Management remains optimistic about continued solid economic growth and expects to deploy record amounts of available capital. Ares Management Corporation's second-quarter earnings call underscored their successful strategy and optimistic outlook. With a strong track record of fundraising and deployment, the company is well-positioned to continue its growth trajectory and capitalize on market opportunities. Despite some concerns about credit market conditions, Ares Management's leadership is confident in the resilience and performance of their investment strategies. Ares Management Corporation (ARES) has demonstrated a commitment to rewarding shareholders, evidenced by their consistent dividend payments. The company has increased its dividend for the past 4 consecutive years, and over the last twelve months, Ares has seen a significant dividend growth of 20.78%, showcasing their financial health and commitment to returning value to investors. This aligns with the company's strong fundraising results and optimism about capital deployment, as mentioned in their earnings report. InvestingPro Data shows that Ares Management has a market capitalization of $27.79 billion and a high P/E ratio of 71.44, which increases to 92.59 when adjusted for the last twelve months as of Q2 2024. This suggests that the stock is trading at a premium based on its earnings, which could be a point of consideration for investors looking at the company's valuation. Moreover, the Price / Book ratio stands at 15.72, indicating that the market values the company significantly higher than its book value. These metrics are important for investors to consider in the context of Ares Management's recent earnings and future growth prospects. For investors seeking more detailed analysis, there are additional InvestingPro Tips available for Ares Management Corporation. These tips provide deeper insights into the company's financial performance and market expectations, which can be found at: https://www.investing.com/pro/ARES. Among these tips, it's noteworthy that analysts have revised their earnings downwards for the upcoming period, and the company is trading at a high earnings multiple relative to near-term earnings growth. With a total of 10 InvestingPro Tips available, investors can gain a more comprehensive understanding of the company's financial standing and future outlook. Operator: Good morning, everyone, and welcome to the Ares Management Corporation's Second Quarter Earnings Conference Call. All this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Also today's call is being recorded. And now at this time, I would like to turn things over to Mr. Greg Mason, Co-Head of Public Markets, Investor Relations for Ares Management. Please go ahead, sir. Greg Mason: Good morning and thank you for joining us today for our second quarter conference call. Speaking on the call today will be Michael Arougheti, our Chief Executive Officer; and Jarrod Phillips, our Chief Financial Officer. We also have several executives with us today who will be available during the Q&A session. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties including those identified in our risk factors in our SEC filings. Our actual results could differ materially and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares fund. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. Please refer to our second quarter earnings presentation available on the Investor Resources section of our website for reconciliations of the measures to the most directly comparable GAAP measures. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared our third quarter common dividend of $0.93 per share on the company's Class A and non-voting common stock, representing an increase of 21% over our dividend for the same quarter a year ago. The dividend will be paid on September 30, 2024, to holders of record on September 16. Now I will turn the call over to Michael Arougheti, who will start with some quarterly business and financial highlights. Michael Arougheti: Thanks, Greg, and good morning, everyone. I hope everybody is doing well. The macroeconomic backdrop for our business improved in the second quarter with a stronger transaction environment, solid and stable credit trends and recovering real estate market. Improving economic picture is driven by a combination of a better outlook for both inflation and interest rates, continued labor market strength and increased confidence in the soft landing. Given the more constructive transaction environment, we were more active across many of our investment strategies. In fact, we invested $26 billion in Q2, our second highest quarter on record and more than 70% higher than the same quarter a year ago. As we highlighted at our Investor Day in May, we're continuing to see significant institutional and retail demand globally for our alternative investment products, particularly within broad credit strategies, but also in opportunistic and value-add real estate, affiliated insurance, infrastructure, and a host of secondary strategies. Q2 was our single best quarter fundraising in our history with $26 billion in gross capital raised, bringing the total year-to-date funds raised to $43 billion. For the second quarter our assets under management grew to a record $447 billion up 18% versus a year ago. Our strong deployment and fundraising activities supported a 22% year-over-year growth in fee-related earnings for the quarter. We also had another strong quarter of fund performance as Jarrod will highlight later. Overall, we are pleased with our momentum, the firm's positioning, and the promising outlook for our business. As we've expected for some time, we're seeing a gradual improvement in transaction volume this year for a variety of reasons; the nearly $1 trillion in private equity dry powder that's aging, significant demand from LPs for a return of capital, a stable rate backdrop and the improving prospects for interest rate cuts, and an economy that remains on solid footing. For Ares, looking across our seven private credit strategies in our credit and real asset groups activity was very strong in the second quarter with gross deployment up over 58% year-over-year. In Q2, we deployed approximately $20 billion in our private credit strategies with net deployment totaling $7.7 billion, more than double Q1 net deployment of $3.3 billion. Looking forward, our investment pipeline suggests continued solid activity, and we have every indication that the second half of the year will continue to be an active deployment environment. The credit quality across our corporate credit assets remains very strong and recent trends indicate stability. As an example our US direct lending portfolio companies experienced their second straight quarter of improving organic EBITDA growth reaching 11% year-over-year. The portfolio's loan-to-value ratio remains in the low 40% range which is meaningfully below historical average market levels and portfolio company leverage multiples are 0.5 turn lower than the prior year. For instance, on its earnings call, ARCC reported a decline in loans on non-accrual to 1.5% and a decline in underperforming loans. Based on the fundamentals that we are seeing across our US and European corporate credit book, our outlook is for continued solid economic growth in these markets and continued favorable credit performance. That said, we are intensely focused on executing our playbook in more active and therefore, competitive markets by out originating our competition using our deep incumbency advantages, performing rigorous fundamental due diligence, negotiating tight documentation structures and staying highly selective. In our real estate strategies, we are seeing market valuations and transaction activity stabilize. Operating fundamentals such as rents and occupancy rates remain positive for our core focus areas of industrial and multifamily, which represented nearly three-quarters of our asset value. Within these segments, we continue to benefit from the growth in e-commerce, onshoring and positive longer-term supply demand dynamics. Our deliberate strategy of extending the duration of our industrial lease terms is enabling us to effectively navigate the market as near-term peak levels of supply are being digested. We are also seeing positive trends in adjacent areas such as student housing, single-family rental and self-storage. Based upon the improving market trends, our real estate team was significantly more active in the second quarter, with deployment more than doubling the year ago period, and our pipeline for new transactions continues to build. We also see significant investment opportunities in data centers and the digital infrastructure needed to support the enormous demands of AI growth. We are investing in digital infrastructure across our various businesses but particularly within infrastructure, alternative credit and real estate. Collectively, we have committed nearly $5 billion in digital-related infrastructure, including data centers, towers and new fiber broadband installations over the past five years. We are also focused on climate infrastructure opportunities and are actively investing in new clean energy projects, including solar, wind and renewable natural gas. Over the past five years, we've committed approximately $3.2 billion in debt and equity investments in these sectors to meet the growing energy needs across the US. Within our secondaries businesses, we continue to see opportunities for new investments across our range of liquidity solutions including purchasing LP portfolios, working with GPs on continuation funds, and providing structured solutions for both GPs and LPs. Overall, the secondary market opportunity remains robust as managers and investors alike try to manage liquidity demands in what has been a transitioning valuation environment and a slower M&A and IPO market. Now let me provide some color on our record fundraising quarter. Across our broad distribution channels, we continue to benefit from increased investor allocations to alternatives a loyal and expanding client base, and our growing scale. All three of our primary fundraising channels; institutional, wealth and insurance are highly productive, and we are seeing a meaningful acceleration in fundraising across our wealth management channel which has more than tripled so far this year compared to last year. Our broad offering of credit strategies continues to lead the way, as our benefits of scale and track record are differentiating factors. In Q2 we raised nearly $20 billion in funds managed accounts and CLOs within our credit group. As you may have seen from earlier this week, we announced the final closing for our US focused Senior Direct Lending Fund III or SDL III, with $33.6 billion of investment capacity. This is the largest institutional private credit fund in the market and is roughly double the $14.9 billion of total investment capital that we raised in SDL II. SDL III's investment capacity included $15.3 billion in fund equity commitments along with related vehicles, closed leverage and anticipated leverage of up to $8 billion that could be raised over the next 12 months. We raised $6.4 billion of capital in Q2 and another $1.8 billion in July for this fund. We're also well underway investing SDL III, having already committed $9 billion of capital to more than 165 companies to-date. With respect to our other large private credit institutional fund in the market, Ares' VI European Direct Lending Fund, we raised another EUR750 million of equity commitments in the second quarter. This brings total equity commitments to EUR12.2 billion today or over EUR18 billion of total investment capacity including anticipated leverage. We expect to raise another EUR1 billion to EUR1.5 billion in equity commitments in the third quarter with additional commitments in the final close expected in Q4. During the quarter, we also continued to raise various funds within our liquid and illiquid credit strategies across our platform. One example is the launch of our Specialty Healthcare Fund, which focuses on direct loans to life sciences companies. We are currently holding our initial closings for this inaugural fund, and we expect to receive commitments totaling approximately $750 million in the coming weeks. We believe that this is a great start for a new product. In addition, we've priced five new CLOs in the quarter. Year-to-date, we've already priced seven CLOs, raising $3.6 billion, exceeding our full year record of seven CLOs for $3.3 billion in 2022. Overall we have raised over $65 billion in the past 18 months across our direct lending strategies. When combined with our fundraising across our other private credit strategies in alternative credit, APAC credit, real estate debt and infrastructure debt, we've raised approximately $85 billion in private credit AUM over the past 18 months. In our Real Assets Group, we are aiming to hold a final close in the third quarter for our fourth US Opportunistic Real Estate Fund, bringing total commitments to $2.7 billion. Based on this anticipated final close size, we expect the fund will exceed the commitments of its predecessor fund by 59% and we believe that this demonstrates meaningful investor support for the strategy and the investment opportunity. We are also off to a great start with our recently launched fourth European Value-Add Real Estate Fund raising approximately EUR600 million in the second quarter, including related vehicles, with additional capital expected for the first close in the third quarter. We also raised another $1.1 billion in our US Real Estate Debt Strategy, as we continue to see attractive values and compelling market dynamics with less competition in this sector. In addition to significant fundraising in our commingled funds, we're also seeing meaningful demand for managed accounts across the platform. For the second quarter and year-to-date periods, we raised $5.4 billion and over $10 billion, respectively, in new commitments in these managed accounts. As I stated earlier, our wealth management business continues to have significant momentum as we penetrate existing distribution, expand into new channels, market to new geographies and broaden our product set. We are in the early phases of the largest generational wealth transfer in history, and importantly we believe that we are seeing a very divergent trend with how baby boomers and the younger generations invest. Baby boomers manage their investment wealth primarily in stocks and bonds, but younger investors are seeking to expand their investing toolkit, by optimizing their portfolios with increased allocations to private market assets. This trend could have significant positive implications for growing wealth allocations, and we believe that we are beginning to see these trends play out in our current results. During the second quarter we raised more than $2.5 billion in new equity commitments across our six non-traded products, and inclusive of leverage we raised $4.5 billion. For the year-to-date period new equity commitments totaled over $4.5 billion which is over 3.5 times the capital raised in the same period a year ago. Since our last earnings call, we've launched certain non-traded solutions with three additional global distribution partners. Based on these expanded partnerships, we expect flows into our wealth focused products to continue to gain momentum through the second half of the year. Aspida, our minority-owned insurance affiliate is on a strong growth trajectory. This quarter it secured nearly $600 million in additional institutional equity from third party investors. With more equity capital expected to be raised in Q3 Aspida is well capitalized and poised for continued expansion. The annuity market is thriving with sales exceeding a record $400 billion on an annualized run rate in the first half of 2024. Aspida is benefiting from these industry tailwinds, experiencing robust flows from new retail annuity sales, and increased flow reinsurance opportunities. So overall, with $43 billion raised in the first 6 months, we're ahead of where we expected to be in midyear, and we believe that we're in a better position to match or potentially exceed the $74.5 billion that we raised in 2023. Our strong first half puts us in an excellent position with record amounts of available capital to deploy. Looking ahead to the next six months, our fundraising is likely to see contributions from a broader and more diverse set of funds. For the year, we expect to have 35 funds in the market across 17 strategies to take advantage of the expected growth in alternative asset allocations. And I will now turn the call over to Jarrod to discuss our financial results in more detail. Jarrod? Jarrod Phillips: Thank you, Mike and good morning, everyone. As Mike said, we continued to deliver strong results in the second quarter. The year-over-year growth of 22% in FRE along with mid- to high teens growth in AUM, management fees and realized income. The record $26 billion we raised in the second quarter helped drive a 29% increase in our AUM not yet paying fees, ideally situating us to capitalize on growing activity levels, as the markets return to a more normalized state of deployment and realizations in many sectors. When you combine this AUM not yet paying fees with our FRE-rich earnings mix and future European waterfall realization potential, we believe we offer strong visibility for future earnings to our stockholders. Taking a look at this quarter's earnings, starting with revenues. Our management fees totaled over $726 million in the quarter, an increase of 17% compared to the same period last year, primarily driven by positive net deployment of our AUM not yet paying fees. Fee-related performance revenues totaled $21.6 million in the second quarter primarily from our non-traded private equity secondaries product, APMF, along with select credit products [indiscernible]. The $15.2 million of FRPR from APMF benefited from AUM growth, which recently reached approximately $1.6 billion in total assets and was aided by a sizable portfolio purchased in the quarter. We would expect AUM growth in APMF to provide long-term tailwinds for additional FRPR generation. However, FRPR from APMF will be more episodic and accordingly, more difficult to project spikes in FRPR like the one that occurrence. As a reminder, we anticipate realizing 95% or more of our credit FRPR in the fourth quarter. I do want to point out two expenses running through our G&A in the second quarter. First, our Q2 G&A expenses were impacted by our first ever firm-wide AGM held in May. Typically, we hold multiple investor events resulting in cost spread throughout the year instead of being incurred in a single quarter. As a result of this quarterly spike in annual meeting costs, we expect G&A expenses in the second half of the year will benefit from fewer event expenses. Second as we continue to scale our wealth management distribution, we incur greater supplemental distribution fees. These fees totaled $15.3 million in the second quarter, an increase of $6.2 million compared to Q1. Importantly, these fees will be partially offset as we recoup the majority of these expenses over time by reducing employee compensation paid with respect to Part 1 fees or FRPR for the associated funds. In the quarter, FRE totaled approximately $325 million, 22% from the previous year driven by higher management fees and a margin improvement of 130 basis points to 42.1%. In the second quarter, we generated more than $40 million of net realized performance income, driven mainly by credit funds European style waterfalls. Realized income in the second quarter was $363 million a 16% increase over the previous year. And after-tax realized income per share of Class A common stock was $0.99, up 10% from the second quarter of 2023. As of June 30 our AUM stood at $447 billion up 18% from the year ago period. Our fee paying AUM reached $276 million at the end of the quarter, up 14% from the previous year. Following sustained fundraising momentum, our AUM not yet paying fees available for future deployment increased to approximately $71 billion at quarter end, representing $675 million in potential annual management fees. Our incentive eligible AUM increased by 17% compared to the second quarter of 2023, reaching $259 billion. Of this amount, over $86 billion is uninvested, representing significant performance income potential. In the second quarter, our net accrued performance income declined slightly to $919 million, primarily due to a reversal of carried interest in certain corporate private equity and opportunistic credit funds, due to the change in the stock price of our position in Savers Value Village. This was partially offset by growth in our net accrued performance income and our credit strategies as the performance, driven by interest income, meaningfully exceeded the hurdle rates. Of the $919 million of net accrued performance income at quarter-end, $783 million, just over 85%, was in European style waterfall funds with nearly $460 million from funds that are out of their reinvestment periods. For the second half of 2024, we are estimating an additional $60 million to $70 million of net realized performance income from European style funds with nearly all of that amount recognized in the fourth quarter. For 2025, we estimate our 2025 European style net realized performance income will be in a range of $225 million to $275 million. The slight decrease in our 2025 estimate is primarily related to one fund where we currently anticipate our realization timing could shift from the end of 2025 to 2026. However the total net realized performance income expected over the life of this one fund is largely unchanged. For 2025, it is best to assume that 60% of our annual European style performance income will be realized in the quarter, 30% in the second quarter and about 10% spread across the third and first quarters with [indiscernible]. The current seasonality of our European style waterfall realizations, primarily due to the early stage of our larger eligible credit funds that make tax distributions which we realize as net performance income compared to older smaller European style funds which are realizing the full net performance income payable near the end of their fund life. The seasonality will persist as several of our larger European funds start regularly realizing performance income, towards the end of their fund lives potentially beginning in 2026. Finally, I would like to discuss our recent fund performance, which is highlighted by broad outperformance within our private credit strategies. Across our credit group, our strategy composites all generated double-digit gross returns over the past 12 months. Our credit portfolios continue to see positive fundamental growth in default characteristics. And we believe we are very well-positioned for a variety of economic scenarios, particularly as approximately 95% of our corporate credit outstanding are [Senior Advisor] (ph). Across Real Assets, we generated gross returns in infrastructure debt of 2.3% for the quarter and 9.7% for the last 12 months. As we highlighted in our Investor Day, our real estate equity strategies are delivering strong returns relative to comparable market equivalents. As Mike discussed, we continue to see positive fundamentals in our real estate portfolios, and we are beginning to see signs of a market recovery, including stable to slightly improving overall values. Our corporate private equity composite had a gross return of 0.4% in the quarter and 0.5% on an LTM basis. The returns in the second quarter were impacted by our large position in Savers Value Village in ACOF V. However, our most recent corporate private equity fund, ACOF VI, generated gross quarterly and 12-month returns of 7.2% and 22.2% respectively, and has a since inception gross internal rate of return of 24.5%. Our corporate private equity portfolios continue to demonstrate strong fundamentals with year-over-year EBITDA growth showing acceleration into the mid-teens. Now I'll turn it back to Mike for closing comments. Michael Arougheti: Thanks, Jarrod. At our Investor Day in May, we highlighted the breadth of our platform, the depth of our management team and our focus on generating consistent and high-quality growth with our balance sheet light model. We also highlighted the significant positive secular drivers influencing our business including assets moving out of the banking system to private credit, the significant need for infrastructure investment, consolidation of GP relationships for institutional investors, growing wealth management allocations, and the compelling opportunities in secondaries and insurance. We believe that this quarter's results demonstrate the power of our platform and how we are benefiting from many of these compelling trends. We remain optimistic about the future outlook. We have one of the largest pools of available investment capacity in the alternative investment industry in what we believe will be an improving transaction environment. Investment performance remained strong across our key investment strategies and we continue to see significant investor demand for our products. As always, our talented team collaborating across the globe drives the current and future success of our business, and I'm deeply grateful for their hard work and dedication. And I'm also deeply appreciative of our investors' ongoing support for our company. And operator, we can now open up the line for questions. Operator: Thank you Mr. Arougheti. [Operator Instructions] We'll go first this morning to Craig Siegenthaler at Bank of America (NYSE:BAC). Craig Siegenthaler: Thank you good morning Mike, Jarrod. Hope everyone is doing well. We were looking for an update on the private wealth channel with net flows tripling year-over-year. So at your Investor Day, you laid out the plans to launch two to four more products shortly. So how is that going? It looks like infra secondaries and maybe a retail Pathfinder ABF type vehicles, should give you the biggest gaps? And then I know you're managing capacity pretty tightly with ASIF. When will ASIF join a second or a third wire in the U.S.? Michael Arougheti: It's a lot of questions. I will see if I get to all of them, and if we miss one, just let us know. So momentum continues, as we articulated. In Q2, we had $4.5 billion of capital raised across the platform. We are pleased with the scaling that we are seeing in the new products like PMF, ASIF and -- ASIF. Our interval fund continues to see positive flows, and while we have seen slowing net flows in our two REITs, I think unlike some of the peer products, we're still seeing positive net inflows into those two products as well. We're in the process of introducing new products into the channel. I'd expect that the next product that we would put in would be in and around our infrastructure business. And as you pointed out, Craig given the breadth of our private credit platform and the success that we are enjoying there, there may be some opportunities to provide dedicated access to certain parts of that franchise as well. ASIF continues to broaden its distribution. We've actually been approved on another distribution platform there. And so that is moving forward according to plan. A bright spot also worth mentioning that we did not highlight in the prepared remarks, is the international expansion of our wealth distribution continues to accelerate and 30% to 35% of our flows are now coming from outside of the US market. And so the investments that we are making there to broaden out the distribution are bearing food pretty early in the build-out. I think that was it. Did I miss anything? Craig Siegenthaler: No, Mike, you covered it. And just -- do I get a follow-up? I forget if it's one question or one and a follow-up, you guys. Michael Arougheti: Yes. Go ahead. Craig Siegenthaler: Okay. So my follow-up is on credit quality. And so it is nice to see a positive inflection nonaccruals at ARCC. That's good for Ares. But you guys have always outperformed the industry. So my question is a little more industry related. Is private corporate direct lending, is the industry past the peak in non-accrual defaults and write-downs? Or do you expect the industry to continue to see some deterioration even though your book is getting better? Michael Arougheti: Yes. Look, I think the longer you go into a cycle like the one that we are in, default rates should go up. And we've been pretty clear on that both in our calls here and at ARCC. But we do not see them going up to a level that we would classify as alarming or approaching what we've seen in COVID or GFC. We remind people that there are things called good old fashioned credit cycles and defaults happen and the market moves on. Yes, we're outperforming the market and you are beginning to see underperformance in certain portfolios. But I would highlight, given our prominence in the market and some of our other large competitors who are putting up similar types of performance, but I think on an index basis, the credit performance in the private credit space will continue to maybe outperform relative to people's expectations. I would remind folks, and we've talked about this before that a lot of the stresses that we've seen coming through in this cycle has been liquidity driven as a result of the run-up in rates, and not necessarily due to the erosion in earnings. And so now, as we all expect that we're in the front end of the cutting cycle, even if we see earnings can recede, you're going to get some release back from the cut in rates so that will temper future defaults. And the setup from a capital structure standpoint, and this is probably the most important at this point in the cycle relative to past cycle, is just significantly different. And I highlighted where our portfolio sit from a loan-to-value basis in the low 40% range. I believe that the private credit market is comparable, and I would not undervalue how important the amount of equity in these structures is to mitigate future credit deterioration in credit risk. It is just a level of equity subordination that we haven't seen in prior credit cycles. And I think when the story gets written on the other side of this, that that will be a big part of the risk mitigation story. So yes, we are outperforming, but I don't read through that there is a broad based underperformance right now. Steven Chubak: Hi, good morning Mike. Good morning Jarrod. So I wanted to start off with a question just on your M&A strategy. We saw the equity issuance during the quarter. It certainly has prompted more speculation on strategic M&A. Just thinking back to Slide 36 at Investor Day, you listed a number of areas where you might look to grow inorganically. Insurance, Asia real estate, global infra, digital infra were the main 4. Just how would you rank those areas in terms of priority? And with some of the macro indicators softening, expectations for rate cuts, is there any improvement in valuations for potential M&A targets? Michael Arougheti: Sure. So look, we've highlighted on our Investor Day where we see, if not gaps in our product and capability set, large addressable markets where scale matters. And we may look to inorganically scale up to go after that growth. That view has not changed. The bar continues to be very high, as we've talked about. We want to see a real good strong cultural fit. We want to see strong financial accretion. And we want to be able to have a strategic road map to drive value into any acquired business similar to what we've demonstrated with the acquisition of Landmark and Black Creek and others that we also walked through on the Investor Day. I do think that the prospect for rate cuts will obviously release some pressure and maybe catalyze some deal flow, I can't say for sure. But we are seeing that in the private markets business generally. So I would imagine that that could flow through into the asset management space. But at the end of the day, when you look at where we've been able to do these deals, they tend to be bilateral, noncompetitive. And as we highlighted on the Investor Day, when you look at the acquisition multiples, they have been at pretty attractive levels, and I think we are going to stick to that type of discipline in buying high quality businesses that we can make better at discounts to our trading multiple. In terms of the equity raise, I wouldn't read too much into that. We also talked about on the Investor Day that we continue to invest in a lot of organic growth initiatives. We are launching new businesses, Life sciences is one example, we're investing up and down our wealth product set. So when you look at the size of that raise relative to the market cap of the company that was really just to delever a little bit and position ourselves to continue to invest in growth. Steven Chubak: Thanks for that color Mike. And just for my follow-up, on the gross versus net origination dynamic. So gross deployment clearly strong in the quarter also encouraging to see some improvement in that gross to net origination ratio, but still indicating continued elevated levels of refi activity. You noted deployment will likely remain strong in the back half. And just wanted to get a sense as to how you expect that ratio will likely traject. Do you expect further improvement in the back half? Michael Arougheti: I think we do. We are obviously -- we have a three to six month forward view on our pipelines. And then as Kort talked about on the ARCC call, the backlog in pipeline just there alone was $3 billion. And when we look at the composition of the pipeline, it is definitely skewing towards new transaction activity and away from the pure refi and kind of incumbent deal flow. We are beginning to see other parts of the platform thaw. Real estate is beginning to show increasing signs of activity after a pretty slow 12 months to 18 months. So I would expect that deployment will hold and then we'll see the gross to net improve. Just as a data point, if you were to go back and look kind of at historical levels our 2023 average gross to net was about 50%. And that has come down dramatically. And so I think that the trend line is in place and I think it's going to continue. Steven Chubak: Great color. Thanks for taking my questions. Operator: Thank you. We go next now to Alex Blostein of Goldman Sachs (NYSE:GS). Alex Blostein: Hi, guys. Good morning thank you for the question. I wanted to start with a bit of a discussion on wealth distribution fees and kind of how those dynamics are evolving. So really nice momentum, obviously on gross sales and you have a couple of other products and platforms on the call. What kind of changes are you seeing, if any from how distributors charge for that? We've been hearing this big, maybe a little more kind of harmonization on placement fee structure. So how does that play out? I know there is a little bit of a higher fee that, Jarrod, that you highlighted on the call as well of $50 million. So was that a one-time placement fee from some of the closed-end funds? Or we should expect a just kind of generally higher run rate G&A expense from distribution? Michael Arougheti: Can you handle the second, yes? Jarrod Phillips: Yes. Sounds great. So Alex, that is actually kind of a run rate based on what we did on the wealth management channel for the quarter. So as we see more fundraise in that channel, we would expect to see more expense there. The one thing that I will remind you, which I also had in my prepared remarks is that as we calculate the Part 1 or the FRPR, depending on the product, we do recoup those amounts out of employee expenses first event. It really is about a 40% impact of that overall cost that was through in terms of a margin or G&A expense headwind. But I view that, as much as you can view an expense as a positive, I generally view it as a positive expense because it means that we are continuing to fundraise and that we're continuing to build a base in those products which we can scale off of. And the fact is we are still in the very early innings of these products. So as we build more scale there, these numbers will be smaller and smaller in relation to that scale. Michael Arougheti: And I think your question -- in terms of harmonization, I think there is -- the simple answer, without going to all the nuances is, yes directionally, I think there is more harmonization. There is a fair amount of nuance in that answer just in terms of the different products and the different channels and geographies and investor share classes. But I think as the market matures and there is more product proliferation, that you should expect to see more normalization of the structures. Alex Blostein: That makes sense. And then, Mike too, one of the things you said earlier when it comes to deployment in your prepared remarks, you highlighted I think being a little bit more selective, maybe I'm paraphrasing a bit. But as you think about the competitive dynamics, whether it is from syndicated markets or from other direct lending players, I guess how are you guys approaching sort of the major buckets of where you're deploying capital right now either by sponsor based or direct to companies and sort of size where you find yourself still generating compelling enough excess returns given the space has gotten more competitive? Thanks. Michael Arougheti: Yes, we do. And I thought that Kipp and Kort did a nice job kind of talking about the competitive positioning on the ARCC call, but it's probably worth reminding folks here. We have a very unique origination advantage. A, I think we've been doing it longer than anybody in the market. We do it at a scale that is difficult for people to rival. It is broad-based geographically. It's broad-based by strategy. It is sponsored and is non-sponsored. We have eight highly developed industry verticals that are originating direct to company. And I think most importantly and most differentiated is we have the ability to invest up and down the size spectrum of company in the middle market competing with certain folks in the lower middle market day to day, and what people would call the core market, and then the larger end of the market, whereas I think some of our peers are probably more focused on that upper end of the market. So when we are having this conversation about the reopening of the syndicated loan and high-yield market, that is okay for us. If you look at our CLO performance as one example, we've already achieved a record level of fundraising in our CLO franchise in the first six months of this year. So we're kind of on both sides of that opportunity. And when the liquid markets open up, we see meaningful growth in capital velocity in our liquid business. And when they close, we take advantage of that and we try to capture share at the upper end of our market. But what you saw in the deployment from ARCC and I think it is showing up in the pipeline as well, the ability to pivot down market and capture excess return there is really, really unique. And I think that is a big driver of our ability to deploy in any market environment. And then lastly, and we talk about this a lot, is just incumbency. When you look at the size of the portfolios that we manage around the globe 40% to 60% of the dollars that we are putting out are into incumbent relationships. And so you saw that through 2023, in what was a slow M&A and new issue market we were still deploying at very healthy rates because of the value of that incumbency. So probably a long-winded answer, but I think the deployment continues to be broad based. We have a lot of flexibility to move around the market liquid to illiquid up and down balance sheet, sponsored and non-sponsored, and we'll continue to do that. Brennan Hawken: Good morning. Thanks for taking my questions. We know that markets can sometimes overreact, but at least based upon what they are telling us this morning, we are increasingly likely to see rate cuts. And they are actually telling us we might see more than just 25 basis points at a meeting, which seems like long odds at least initially but whatever. So could you remind us about the sensitivity to a 25 basis point drop in short-term rates on FRPR and what the likely offsets would be to that impact? Michael Arougheti: Sure. Let us go a little bit deeper than just FRPR because I think it is important for people to understand how it rolls through the different components. But this, again is where the structure of our P&L and the structure of our balance sheet, I think is going to differentiate. And we talk a lot about the importance of balance sheet light versus balance sheet heavy, to smooth out the volatility that you see from sharp changes in valuation and rate moves. So if you were to look at the composition of the P&L first and foremost, we have obviously been a beneficiary of rates staying high on the Part 1 part of the P&L. There are public disclosures in the ARCC 10-Q that walk people through what the sensitivity is. But the good news is what you will see there is that there is a 100 basis point decline in rates just based on the structure of the compensation there. That would have roughly a $9 million impact on FRE. So cut that by four for your 25 basis point question which is sub 1%. But importantly, when rates come down, we typically see transaction volumes pick up. And that decline in Part 1 is typically offset by increased volumes and increased transaction fees. So our experience has been in that part of the P&L, that we have been net beneficiaries. When it comes to FRPR, it is also important to understand that there is a lag effect to your specific question. So typically, when we see rate decline just based on the structure of our investments, there's usually a six month lag effect. But if you were to look at 2024 positioning, if we saw a 25 basis point rate cut in 2024, that would probably have a $0.5 million impact on our FRPR. So again you could multiply that by whatever number you want. And then again, the future impact is going to be a function of what does it mean for earnings performance, valuations, et cetera. But the 2024 impact is de minimis. With regard to our disclosures on European waterfall, I think it is important that people understand that when we are making those calculations and giving you the guidance that we're giving, we're already using the forward yield curve in that guidance. So no surprises there. But in terms of how we expect that to roll through the portfolios, the expectation for cuts is already baked in. From a balance sheet standpoint, obviously balance sheet light, we don't expect any material impact. And in fact obviously given that we borrow under a pretty sizable floating rate revolver, we should see a net benefit from lower interest expense. And then maybe just to wrap all of that together, like I said we expect that the future decline in rates will spur increased capital markets and transaction activity and velocity of capital, which we think is a net -- a net add. And so I feel really good about the rate positioning, and to the extent that rate cuts start sooner than the market originally had underwritten based on today's jobs report, then so be it. Brennan Hawken: All right. Thanks for that. That was very helpful, Michael. In your prepared remarks, you indicated signs of recovery in real estate, which is certainly encouraging to hear. Could you maybe drill down a little bit into that? What parts of the market are you beginning to see those signs, how broad-based is it? And how much of that encouraging signs might have to do with the idea we could be getting some relief on the interest rate side which has been a bit of a headwind for that business? Michael Arougheti: Yes. I think that's a big part of it. Obviously the real estate business is one of the more rate-sensitive parts of the alternative landscape. And so getting rate stability, if not rate reduction, that does have a flow-through impact to transaction markets. And so I think some of the falling that you're beginning to see even ahead of the rate cuts is anticipation of rate reductions. The segments of the market that we focus on just to remind people, in order are industrial logistics and multi-family about 0% industrial, 25% multis for three-quarter of our book. And as we've been talking about all through this rate hiking cycle, the fundamentals at the property level in those markets have continued to be quite strong and the secular demand drivers are still intact. And so there is some fundamental strength that pushes through to transaction volume once you start to see the rates come down and that's part of it as well. The real estate debt business, I'd also say, has been a bright spot for us. Obviously, as we've seen in other parts of the private credit landscape, as the banks are derisking the private markets, have been able to come in and be a pretty reliable capital provider at some pretty attractive rates. And we have seen a meaningful opportunity developing in our US and European debt business as well where we are seeing some pretty healthy deployment. Bill Katz: Thank you very much for taking my questions. Good morning everybody. So Michael in the opening remarks, you talked about the sort of the shifting demographics of investing with younger folks more interested in alts. How are your conversations going with some of the retirement gatekeepers, particularly in the 401(k), so that's the target date fund area? Is there any building receptivity to opening up sleeve to the alternatives? Michael Arougheti: So the answer is we have dedicated teams and efforts underway here to make sure that our product is ready for that market when it opens. To your point, I think some of those logical channel partners are open and hoping to see the DC market open to privates and alternatives. You mentioned target date funds. I do think that will be one way that they find their way in. There are obviously going to be some call it, legal and regulatory headwinds to those markets opening up as quickly as maybe we all would like them to see. But when they do we will be ready, I guess is the best that I can say. But it is going to be a slow path, but one that we are cautiously optimistic will open up in due time. Bill Katz: Okay. And just one for Jarrod, hate to belabor it. Can you go back to just the offset on the comp side? I wasn't particularly following that related to the distribution? And then just stepping back maybe give us an update on the flight path to the 45% margin for this year and then the sort of sequential rise as we look out to '28? Thank you. Jarrod Phillips: Sure. And the first part of the question there. when you think about these distribution fees that we pay, what we make sure is that we don't pay out comp on our Part 1 or FRPR before we recapture those. So typically, what you've seen in Part 1 and FRPR is a 60-40 split, so 40% margin there. You will see that those ratios were actually having a better margin, and that's a result of us making sure that we are repaid for those distribution costs prior to paying any employee expenses. So that means that the house is kind of sharing 60-40 the expense with the compensation pool. And I'm happy to walk you through more on the mechanics there, but that's essentially where it works if you just take the total amount that we would otherwise earn and reduce from the expenses. In terms of margin, we talked about this in Investor Day, our focus is, first and foremost in high-quality growth. And sometimes high quality growth comes with the costs prior to we see -- seeing revenues for it. In doing so, though we know that because of the way we are built, generally, you'll see margin expand based on our deployment. So we walked through and I walked through at Investor Day is that we would be somewhere in the 0 basis points to 150 basis points in any given year. And if you look at where we're at now, I think we're about 130 basis points up over last year. So as we continue to see deployment we will continue to see expansion of that margin, but it's going to be kind of at the speed of what deployment is. So you'll have some times where it will spike and you will have sometimes where it will be more flat. Certainly a little bit of these distribution fees coming in is somewhat of a tailwind -- or a headwind to it. And as I mentioned earlier in my response, that as we build scale in those products, these are onetime fees as you raise them, so they don't recur annually, so there will be a smaller percentage of the overall management fees that we are earning from these products going into future periods. So that is another way that margin will expand moving forward. Ben Budish: Hi. Good morning and thanks for taking the question. Maybe first on the state of competition in credit. Mike, you talked about some of the areas in which you're leaning into some of your advantages. Some of the media headlines would indicate that loan documentations either becoming looser or more flexible in response to competition. I was wondering if you could talk to the degree to what you're seeing that things like increasing inclusion of PIK optionality, things like that. To what degree are you seeing that sort of increase in the deals you're doing? Michael Arougheti: I'll try to give a simple answer to a - it is not actually a simple question because it goes back to some of my earlier comments just about the structure of the market. So in my oversimplified view of your lower middle market, traditional middle market and upper middle market I think it's safe to say that generally in the lower middle market in traditional middle market you have seen very little, if any of the large market structural deterioration find its way into those markets. When you start to get into the upper end of the middle market in competition, with both the liquid markets and the larger credit providers, you will see some but not nearly to the same extent as the traded markets, some deterioration in structure, which I would argue in many cases could be said to be appropriate because they are higher quality, sometimes larger borrowers that can command that type of structure. But most of the things that people should be concerned about in terms of the liability management loopholes and things that the media tends to focus on, those are really not present in the middle market. I think there is been an extraordinary amount of discipline despite the perception of increased competition on documents. Kipp and Kort again on the ARCC call addressed this as well in saying that, when you look at where we're turning transaction down, it is largely going to be over documents, and it could be some fairly simple or seemingly simple things that we will pass on if we don't feel that we have the ability to exercise our creditor rights when we need to -- the way that we need to. So I do think the media is probably overblowing it relative to the broad middle market. And even at the upper end in relation to the liquid market, it's really not that pervasive. I think PIK is a different question, and again, not to go down a PIK rabbit hole, PIK in today's market is not necessarily an indicator of structural deterioration. I'd encourage people to think about it as a way for private credit managers to capture excess return at a time when base rates are high. And so if you are thinking about prudently structuring your leverage and managing to a sustainable interest coverage ratio and not constraining the cash flow of a company and constraining their ability to execute their business and growth plan, then PIK is the way that you are going to capture excess return and support your borrowers. So you have to differentiate between PIK that is intentional at the outset versus maybe PIK that is used to reduce default, et cetera, et cetera. But again, that is not really the same as some of the other structural deteriorations that people like to think about. And again, when you look at our approach to pick in the corporate credit book, it is more of the former than the latter. Ben Budish: Got it. Very helpful. And then maybe just a quick follow-up. Just given the size of the latest SDL Fund, how do you think about sort of the future of the fund structure there? Does it make sense to continue to scale up these drawdown funds? Or to what degree will you continue to maybe raise or -- to an outsized degree from more perpetual strategies that could potentially be more scalable? Thank you. Michael Arougheti: Yes. I think this is a place that we've been quite vocal. Craig brought it up earlier as we said that we were kind of tempering growth despite the high growth in places like ASIF. You have seen us raising equity and scaling ARCC. And now you are seeing in SDL III. We have learned over the 30 years that we've been doing this that it is critically important that you are diversified in your distribution and funding sources. We have a pretty good handle going into any year or years, as to what we think our deployment capacity is, and we structure our capital to meet that deployment capacity. So SDL has been investing already as we have raised, we're about $9 billion in the ground on that fund. So it is deploying at the expected pace. But we never want to be beholden to one fund or one channel because in different parts in the cycle, those will open or close. So if the non-traded market sees a slowdown in appetite, we want to make sure that we have other forms of capital that can actually meet the deployment demand. Similarly, as we get closer to end of fund life on some of our commingled, you may see us turn on managed accounts or the public entities. It's critically important that people understand that diversity of funding is a big driver of how we actually create value here, and we'll continue to do it. So I don't think we will ever give up on this complement of funds that we have open-ended, closed-ended, perpetual offer, campaign, traded, non-traded. It is a big part of how we run the business. Ken Worthington: Hi. Thanks for squeeze me and at the end here. We're almost 18 months beyond the regional bank crisis. I think Ares considered the opportunity to come in various different phases for Ares over time. What phase would you consider us to be in now? And what do you see as the opportunity for Ares kind of going forward? And does a more benign interest rate environment alter the opportunity set that you see going forward? Michael Arougheti: Yes. I wouldn't say that it alters the opportunity set. I mean, Just to reiterate, I think what you are referring to, we've talked about the different phases. One was obviously an early phase where there is just certain portfolios that were distressed or certain balance sheets that were distressed that needed resolution either through asset sales or risk transfer transactions. And there is still some of that going on. But given the continued strength in the economy now, the prospect for rates, you may see less of that. There still is a pretty significant amount of assets sitting on bank balance sheets that will need to get resolved either for credit reasons or regulatory capital reasons. And so I don't think, that means that the types of deals that we're seeing are not going to happen. They just may not be happening at the same velocity. We are now I think transitioning to the next phase which we've talked about -- which is a much more sustained opportunity is that in the wake of that crisis and the wake of increased regulatory capital pressure. You will begin to see more of these assets finding their way into the private markets. And that is actually a more consistent opportunity set for places like our alternative credit business and our real estate lending business, to name a few. So I think that transition is underway. We are seeing it in the composition of our pipelines. But even with rates coming down, just given some of the acute stresses on certain bank balance sheets, I wouldn't rule out that you'll continue to see a decent amount of portfolio trades and continued risk transfer deals as well. Patrick Davitt: Hey, thanks. Good afternoon everyone. Most of mine have been asked, but maybe a broader macro one. It strikes me that everything you're saying today is a pretty dramatic contrast with what the market thinks is happening today. So from what you can see across your borrowers, PE companies, et cetera, I guess the jobs report today, do you see this as an overreaction? Or do you think there is a real potential evolution towards seeing a path to maybe slower economic growth and thus more cuts than maybe you and your competitors have been talking about just a couple of months ago? Thanks. Michael Arougheti: Yes. We've talked about this so lot. I mean the best we can do -- we don't have a crystal ball, but we have data that we see in our private market portfolios that is telling us something different. And we've been consistent on that. So two years ago, when the markets were calling for a recession, we weren't. And so we try not to get worked up as long-term investors in any one singular headline. We obviously already talked about that if rate cuts get pulled forward both in terms of timing and magnitude I think the business is very well-positioned for that transition. But we are not seeing anything in our private portfolios that would argue for what we are seeing in the market today. It is interesting because as a private market practitioner that runs a public company, I'm often struck at just the volatility and schizophrenia that you can see in the interpretation of data that comes out in the public markets. And month to month, good news, is bad news and bad news, is good news. And today I guess, okay news is bad news. We just try to look at the facts as we see them and make sure that we are well positioned. But I personally feel -- I feel like it is an overreaction, but we'll keep collecting data and react accordingly. Michael Cyprys: Great. Good morning. Thanks for squeezing me in here. Just wanted to ask on the non-sponsored business that you guys have just if could share an update on that just in terms of non-sponsored direct lending, remind us of the size of that platform and some of the initiatives that you have for broadening that out particularly as banks are looking to run with more capital-efficient balance sheets. And then just curious how you would expect the pace of activity there at non-sponsor to evolve over the next 12 months, as compared to your larger sponsor direct lending business. Thank you. Michael Arougheti: Sure. As I said, we have right now about eight industry teams that we deploy across the private credit business. They are originating direct to corporate and they are supporting our sponsor-led originators and deal teams when a sponsor is actually investing in a company in that industry. So it's kind of a double benefit of that we are actually able to increase our non-sponsored origination. But also, I think do a better job underwriting in some of these markets. The non-sponsored business, just given the size of the markets and the importance of sponsor, will continue to grow on an aggregate dollar basis. But I'm not sure that we'll get it to a place where it's kind of going to overwhelm the sponsor backed opportunity. But order of magnitude, just to give you a sense, if you were to look at our non-sponsored origination just in our direct lending business, and there's a pull-through effect to other parts of the business, it's probably somewhere between 5% and 10%. So it's meaningful aggregate dollars, but it's not going to move the needle in any given period. It's highly differentiated, particularly in some of these core verticals like sports media and entertainment or life sciences where we've been early both in adding people and capital. So we'll keep making those investments. Brian Bedell: Great. Thanks for squeezing me in. Mike, just to follow on the last couple of questions on maybe on deployment as we sort of move into the back half of this year and come into 2025, just in this -- I guess, only a couple of days in here. But a very recent environment obviously, where per sentiment is shifting negative. To the extent that we have more market volatility and at least temporary financial stress in the system. How could that impact your deployment plans for the second half? Would that actually help you because potentially bank sponsors would pull back? Or would it freeze-up deployment temporarily potentially? Michael Arougheti: Yes. So the way I think people need to begin to understand the deployment is the deployment geography will change right? So if you go back and you look at 2023 where new transaction volume was constrained, you would have seen increased deal activity within the incumbent portfolios and in places like opportunistic credit, alternative credit and secondaries because they are going to be that liquidity provider into the dislocated market. Then you transition to a healthy market and you'll see volumes ramp up in the liquid side of the business and new issue volumes increasing in the direct lending market. And if we go into a more volatile market and banks pull back, et cetera, then you'll shift it again. So because of the diversity of strategies that we manage and the diversity of geographies that we manage them in, the volatility of deployment is reducing over time. And so yes, I continue to believe that just based on the weight of capital, the aging of the installed base of private equity, rate cuts having a corollary impact on valuations and the cost of capital I still think that we are going to see pretty healthy deployment into the back half of the year, today's market move notwithstanding. But if for whatever reason, the market has got too nervous then we are going to find other parts where our capital is going to be more relevant and we would kind of be deploying there as well. So I think we are in a really good spot. Brian Bedell: That's helpful. And maybe just one on retail. Any interest in doing a deal like what we saw was obviously take care in capital in terms of a hybrid structure with retail products to a much wider distribution? Or you like your strategy as it is now? Michael Arougheti: Well, as of now, that's just a headline. I don't know if anybody really knows what that deal actually looks like. So I can't opine as to whether or not we would do something like that or not. We have partnered with more traditional asset management platforms over the years through various sub-advisory agreements and partnerships to bring private markets into some of those portfolios, and that's been a part of our diversification of distribution historically. So I would expect that type of thing would continue. We would be open to it. I think I would just go back to some of our comments around our Investor Day, is that we are very focused on what I would call high quality growth. And what I mean by that is sustainable growth at high fee rate, high margin where we are maximizing the value of our origination. Because at the end of the day the binding constraint to growth and profitability for anybody in our business is going to be our ability to source unique assets. And how we then deliver those assets to our clients whether they are institutional or retail, is another side of the equation. But from the Ares Management shareholder perspective our goal is to make sure that we maximize the profitability of that origination. And so I don't -- again not knowing what those partnerships look like, it's very expensive to originate and portfolio-manage the type of assets that we do. They do require a high fee rate which is why our average fee rate is 1.1%. And so we have to be very careful that when we start talking about private markets within traditional portfolios that people don't go down the rabbit hole of thinking they can access difficult to access non-correlated unique private outcomes at public market rates. So we think a lot about it. We have very deep relationships with many of the traditional managers at the highest levels of the firms. But the calculus as to whether or not to enter into any partnership like that is going to really go back to what I said earlier, is what's our capacity to deploy and is there a benefit in diversifying the distribution into that channel against that deployment. And so I think that's a TBD. Brian Bedell: Okay. Great. That's really helpful. Thank you very much. Operator: And gentlemen, it appears we have no further questions today. Mr. Arougheti, I'll turn things back to you, sir for any closing comments. Michael Arougheti: Great. We appreciate it. Thank you for the great questions and the time today. And we look forward to speaking to you again next quarter. Enjoy the rest of the summer. Operator: Thank you, Mr. Arougheti. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of the call will be available through September 2, 2024, to domestic callers by dialing 800-839-4012 and to international callers by dialing 402-220-2981. An archived replay will also be available through September 2, 2024 on a webcast link located on the home page of the Investor Resources section of our website. Again thank so much for joining us everyone, wish you all a great weekend. Good bye.

Earnings call: ArcBest reports steady Q2 2024 results amid market challenges By Investing.com

ArcBest (NASDAQ:ARCB), a leading logistics company, announced its financial results for the second quarter of 2024, indicating solid performance despite a slight decrease in revenue. The company reported an increase in non-GAAP operating income and remains committed to growth, efficiency, and innovation to support customer needs. With a strong focus on managed transportation solutions, ArcBest achieved double-digit growth in this area and maintained a high customer retention rate. The company's Asset-Based segment saw an upturn in operating income, while the Asset-Light division faced a decline due to softer market conditions. ArcBest's executives expressed confidence in the company's strategic positioning for the eventual recovery in freight volumes and highlighted their disciplined approach to pricing and cost management. ArcBest's continued investment in operational excellence and disciplined cost management is expected to support its long-term growth strategy. The company's leadership remains optimistic about leveraging their strong pipeline of opportunities and efficiency improvements to outpace negative macroeconomic trends and control their own growth trajectory. ArcBest (ARCB) has recently shared its financial outcomes for the second quarter of 2024, revealing robust performance amid challenging conditions. To further understand the company's financial health and stock performance, let's consider some real-time data and insights from InvestingPro: For additional insights and tips on ArcBest, InvestingPro offers more than 9 tips that can help investors make informed decisions. Visit the InvestingPro platform for a deeper dive into ARCB's financials and strategic positioning. The P/E ratio, in conjunction with the share buyback activity, could be of particular interest to investors looking for companies with a proactive approach to managing their stock value. Meanwhile, the commitment to dividends could appeal to those seeking steady income streams. These metrics and tips from InvestingPro offer valuable context to ArcBest's recent earnings report and future outlook. Operator: Thank you for standing by. My name is Danica and I will be your conference operator today. At this time, I'd like to welcome everyone to the ArcBest Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Amy Mendenhall, Vice President, Treasury and Investor Relations. Please go ahead. Amy Mendenhall: Good morning. I'm pleased to be here today with Judy McReynolds, our Chairman and CEO, Seth Runser, our President, and Matt Beasley, Chief Financial Officer. We also have several other members of our executive leadership team available for the Q&A session. Before we begin, please note that some of the comments we'll make today will be forward-looking statements that are subject to risks and uncertainties which are described in the forward-looking section of our earnings press release and SEC filings. To provide meaningful comparisons, we will discuss certain non-GAAP financial measures that are outlined and described in our earnings release. Reconciliations of the GAAP to non-GAAP measures are also provided in the additional information section of the presentation slides. You can find the slides on our website, arcb.com, and Exhibit 99.3 of the 8-K filed earlier this morning, or you can follow along on the webcast. Before I hand the call over to Judy, I would like to thank David Humphrey for his 41 years of dedicated service to ArcBest, including 26 years leading our Investor Relations team. His contributions have been invaluable and I am personally grateful for his support in making my transition into this role seamless. David is in the room with us today and we will continue to work together until he retires at the end of the month. I will now turn the call over to Judy. Judy McReynolds: Thank you, Amy, and congratulations again, David, and good morning, everyone. I'd like to begin by thanking our employees. Your tireless efforts keep the global supply chain moving and your unwavering commitment to our customers relentless pursuit of excellence and adaptability in the face of constant change are truly appreciated. Despite navigating a challenging freight cycle, our focus remains on delivering for our customers while advancing our strategic priorities of growth, efficiency and innovation. Reflecting on past freight cycles, ArcBest is in a much stronger position today thanks to our long-term thinking and disciplined execution of our strategy. Seth and Matt will provide more insights into how we're investing in our people, solutions and technology to drive results, and I'm pleased with the progress we are making. The strength of our strategy has been reaffirmed as I've spent time with our customers and listened to their needs. They seek efficiencies by leveraging trusted relationships and using multiple modes of transportation. ArcBest strategy is perfectly aligned to meet their needs and demand for our services continues to grow. Our sales pipeline is up nearly 40% since January and continues to expand and progress into later stages. Our managed transportation solution, which helps customers optimize their supply chains, had double digit growth in both demand and revenue. Customer retention is solid. Over 80% of our revenues are from customers we've had relationships with for over 10 years. We are trusted advisors to our customers who value our solutions and utilize our offerings to enhance their supply chains. Additionally, we are implementing programs that benefit our bottom line. In the second quarter, we saw significant efficiency improvements in our asset-based business while delivering the best on time performance in five years. In a moment, Seth will take you through the initiatives driving these results and Matt will detail how they've improved our financial performance. All of this work positions ArcBest well for the eventual recovery in freight volumes. Before I hand it over to Seth, I want to highlight our recent announcement that Seth Runser has been promoted to President of ArcBest and Matt Godfrey will succeed him as ABF President. These promotions underscore ArcBest's deliberate focus on talent development and succession planning across our organization. Our results this quarter and the successful initiatives Seth and Matt Godfrey have led demonstrate why I'm so confident these appointments are the right steps for ArcBest. Many of you know Seth. He has been a key leader at ABF for years, delivering eight quarters of record results and overseeing the successful renewal of our five-year union labor agreement. As president, Seth has assumed responsibility for our day-to-day operations and execution of our integrated logistics solutions. Our operational leaders will now report directly to him. After the impressive transformation at ABF under his leadership, we are excited for him to take on this role where I'm confident his deep knowledge of the business and innovative spirit will help us continue improving performance for the benefits of our employees, customers and shareholders. I will remain CEO and Chairman of the Board, focused on advancing our long term strategy, driving innovation and further developing relationships with customers, shareholders and employees. Matt Godfrey's promotion is also special to me. In 2015, ArcBest started a Leadership Academy and Matt was one of the first to graduate from it. His success is a clear example of our commitment to investing in our people, and his achievements underscore the power and effectiveness of our development program. He has been working closely with Seth for many years at ABF and has spearheaded ABF's real estate plans, including long term facility growth and enhancement plans and transformational projects that enhance operations and drive efficiencies. I have no doubt he will continue building on Seth's progress and he is the right person to lead ABF going forward. And now I'll turn it over to our new president of ArcBest, Seth Runser. Seth Runser: Thank you, Judy and good morning. I want to start by expressing my gratitude for Judy's vision and leadership. I'm excited to serve our customers and employees in this new role, and I'm fully committed to ArcBest's strategy of accelerating growth, increasing efficiency, and driving innovation. ArcBest's innovative mindset and integrated solutions uniquely position us to help customers solve their most complex logistics challenges. And as Judy mentioned, our value proposition continues to resonate with customers. Now, let's discuss some of the key initiatives across ArcBest that are driving efficiency gains and delivering results for our customers. Starting with our facility plans, we are progressing well strategically, adding capacity, increasing efficiency and improving service. Our newest facility opened in June in metro Atlanta, adding city capacity in key markets and freeing up transfer capacity in our network. As expected, we're already seeing productivity improvements up 16% in these locations. We added four facilities from the yellow auction as replacements for current facilities. Two of those opened last month and we expect the other two to open this quarter after renovations are complete. Additionally, in the fourth quarter, we expect to add 66 more doors in Chicago, with another 40 planned in San Bernardino, California in early 2025. In addition to adding doors, we see a direct line of sight for these projects to significantly improve productivity. You have also heard us speak about our operation experts deployed to our largest facilities, focusing on continual improvement and operational excellence. This team's work has yield cost savings nearly four times what was projected and they will continue to move throughout the ABF network this year and into 2025. We are also advancing our innovation and technology projects. We have numerous active projects and a flow of new pilots in progress. Our city route optimization project, which uses AI to map our routes, continues to deliver significant efficiency gains, and we're expanding this project into additional phases. Our investments in innovation are paying off with direct results and value creation for our customers and shareholders. Our customers tell us they need better visibility into their supply chains. As technology has evolved, we're now able to do things that weren't possible just even a few years ago. Over the last several months, we've made enhancements to shipment visibility, providing customers with more data about their shipments and expanding visibility to even before the shipment has been picked up. With our large and growing database of shipment data, beginning this month, customers will receive more accurate LTL shipment arrival information. This is another example of how our technology investments are driving real improvements in our service and the value we provide our customers. In Asset-Light, our digital quoting and carrier portal tools are gaining momentum, shipment volumes have increased and we have maintained our focus on controlling cost. As a result, employee productivity improved over 30% year-over-year. We will continue to leverage technology for future productivity gains. In the third quarter, we will implement carrier payment and invoice auditing solutions from TriumphPay. By leveraging this technology, we expect to reduce manual tasks, improve efficiency, which will allow us to grow with fewer added costs, reduce fraud potential and improve our carrier partner experience. We believe that innovation will continue to transform our industry and ArcBest is committed to investing in innovation to drive future growth and create value. Now I'll turn it over to Matt to go through the financials in greater detail. Matt Beasley: Thank you, Seth and good morning. I'm pleased to report that ArcBest delivered solid financial results for the second quarter of 2024 despite the softer market environment. On a consolidated level, second quarter revenue was $1.1 billion, a slight 2% decrease versus last year. However, our non-GAAP operating income from continuing operations rose by 28% to $64 million. Adjusted earnings per share increased to $1.98, up from $1.54 in the second quarter of 2023. Despite lower revenue and additional costs related to the new labor contract. Our Asset-Based business saw a $21 million increase in non-GAAP operating income compared to the same period last year. Our Asset-Light business experienced a $9 million decline in non-GAAP operating income, primarily due to current truckload market conditions. Now let's talk about our two segments in more detail, starting with our Asset-Based business. Second quarter revenue was $713 million, a per day decrease of 2%. The segments non-GAAP operating ratio was 89.8%, an improvement of 300 basis points compared to the second quarter of last year and an improvement of 220 basis points from the first quarter of this year. This improvement led to the second best Asset-Based operating income for second quarter in our history. Second quarter tonnage per day decreased by 20% and daily shipments were 5% below prior year levels. To maintain consistent capacity and labor levels in our network during the first half of 2023, we took on more transactional business as market conditions improved in the second half of the year, we reduced transactional shipments in favor of core shipments, resulting in 14% growth in core LTL shipments and 11% increase in core LTL tonnage on a year-over-year basis for the second quarter. This shift contributed to improved productivity and better financial results. Year-over-year build revenue per hundredweight increased by over 23% in the second quarter, driven by strategic price increases on transactional business and a higher proportion of core business, which has a higher revenue per hundredweight. We secured an average increase of 5.1% on our customer contract renewals and deferred pricing agreements during the second quarter, demonstrating our continued pricing disciplines. By optimizing our freight mix, improving productivity and lowering costs, we offset higher union contract costs, achieving higher operating income despite lower revenue. On page 11 of our conference call slide deck, we illustrate the significant impact of these actions on our second quarter results. Sequentially, compared to the first quarter of 2024, the segment saw low to mid-single digit percentage improvements in revenue tons and shipments per day, revenue per hundredweight and revenue per shipment. We are now one year beyond several major events, including a competitors bankruptcy, the start of our new labor contract, and the implementation of our freight mix management and cost savings initiatives. For the trailing twelve months ending June 30, 2024, our non-GAAP operating ratio was 89.5%, an improvement of 840 basis points since 2016, demonstrating the effectiveness of our strategy. The impact from last year's market disruptions began in mid-July 2023 and peaked from August through October. Based on preliminary results, total revenue per day and shipments per day both increased 1% year-over-year in July. We anticipate that daily tonnage levels for third quarter 2024 will be below the prior year. As some of the core business increase that began in July 2023 was project related and some of the increased business has shifted to other providers over the past year. Pricing remains rational and the strength of our core business allows us to optimize spot prices for transactional business. On July 1, 2024, the contractual wage rate under our union contract increased and the health, welfare and pension benefit rate increased on August 1 for a combined rate increase of approximately 2.7%. Historically, the average sequential change in the Asset-Based operating ratio from the second quarter to the third quarter has ranged from flat to 100 basis point improvement. With the current market backdrop and cost outlook for the third quarter, including the previously mentioned contractual wage and benefit increase, we expect the third quarter 2024 operating ratio to be consistent with second quarter 2024. Moving on to our Asset-Light segment, second quarter revenue was $396 million, a daily decrease of approximately 4% year-over-year. While shipments per day increased 13%, revenue per shipment decreased by 15% due to the soft freight market and growth in our managed business, which has smaller shipment sizes and lower revenue per shipment levels. The non-GAAP operating loss of $2.5 million for the quarter was largely due to lower margins in the current truckload market. Compared to the first quarter of 2024, revenue per day was flat, but margins improved due to lower purchased transportation costs which increased in January due to winter weather. Shipments per day decreased slightly as customers using our Asset-Light solutions experienced lower demand in their businesses. Our Asset-Light offerings play an integral role in our overall strategy as customers seek long term logistics partners for all their transportation needs. Our Asset-Light solutions also allow us to serve a much larger portion of our customers transportation spend and there's a tremendous market opportunity for our truckload and managed solutions. In addition, 70% of our Asset-Light customers also use our Asset-Based LTL solutions. Our ability to meet our customer's needs at a price that reflects the value we offer is a key differentiator. Looking at preliminary results for July, revenue per day decreased 10% year-over-year due to lower revenue per shipment. While shipment volumes for our managed solution have increased. This growth has recently moderated due to lower demand from existing customers reflecting current macroeconomic conditions. Additionally, truckload volume has slowed as we strategically reduce less profitable freight. Purchase transportation expense as a percentage of revenue increased sequentially throughout the second quarter and into July as carrier rates rose. These higher costs have reduced margins for our truckload brokerage contract business. We continue to focus on improving productivity and reducing cost per shipment. However, segment operating profit will remain impacted in the near term by current truckload brokerage market conditions. For the third quarter of 2024, we expect non-GAAP operating loss levels to be consistent with the second quarter of 2024. For the first half of 2024, we returned $37 million to shareholders through share buybacks and dividends. We have a $57 million net cash position and $500 million in available liquidity. Our capital expenditure plan for the year remains in the $325 million to $375 million range. We are proud of our second quarter performance and our solid financial position. As Judy said, we continue to pursue growth, efficiency and innovation while delivering superior service to our customers and value to our shareholders. With improvements in operating costs and productivity and continued emphasis on growth initiatives, we are well positioned for the future. Now I'll turn the call back to Judy for some final comments. Judy McReynolds: Thank you, Matt. Before I wrap up, I want to highlight some of our recent achievements that reflect our commitment to excellence and sustainability. ArcBest has once again been recognized as an Inbound Logistics green supply chain partner in 2024. This honor underscores our legacy of good stewardship and our dedication to helping our customers advance their sustainability efforts. We are also proud to be named one of the best companies to work for, by US News and World Report and to be ranked as a best leadership team by Comparably. These awards are a testament to our ongoing efforts to make ArcBest a leading place to work and we're grateful for the recognition from these publications. Looking ahead, our team remains focused on continuing to deliver profitable growth through operational excellence, disciplined cost management and ongoing innovation. And that concludes our prepared remarks and I'll turn it over to the operator for questions. Operator: Yes, thank you. [Operator Instructions] Your first question comes from Jason Seidl with TD Cowen. Please go ahead. Jason Seidl: Thanks, operator. Judy, Amy, Seth and the rest of the team, good morning. Just two quick things here. One, if we look at that project business that you mentioned in July of last year, if we exclude that, would your tonnage be projected as positive in 3Q? And then, Judy, just in general, you know, there's a lot of talk right now about a potential recession. You get a good look into the economy as a national carrier. What are your customers telling you? Christopher Adkins: Hey, Jason, good morning. This is Christopher. I'll just comment on the project business from last year. So last July, like you said, we did bring on some of that just due to the market disruption. That was good business for us. That is definitely part of the story for the tonnage decline year over year. But it's not all of it. Some of it was just us on-boarding some of that core business for us that we were there in that time of disruption for our customers. But honestly, some of it went to lower cost providers that they were able to shift by the end of the year. So third quarter will be challenges from a year over year tonnage perspective, but we're still, we continue just to make good decisions in terms of the profitability and freight selection for our business. Jason Seidl: Okay. And, yes, and just, just from a wait for shipment perspective, you've seen it just drop from second quarter into July, just that it's starting to moderate. I would expect that to continue to moderate through the rest of the year? Christopher Adkins: Judy, overall economy. Sorry, Jason, we missed part of that. If you had to follow-up. Jason Seidl: No. Yes, I said no. I was asking Judy her thoughts on the overall economy, given that there's a lot of fear of a recession. Since you guys have such a good look into the macro, I was wondering what you... Judy McReynolds: Yes. Well, Jason, I think that we're certainly, being affected by those challenges. I think that what we see is that we're kind of working across the bottom here, and we really don't have a crystal ball as to when that will inflict. But, we feel like that we're well positioned, really, in any environment to succeed. We've got a pipeline, that's increased 40% since, the beginning of the year. That really includes opportunities across LTL truckload and managed to, which we're excited about. And the work that we do with customers in this kind of environment shifts more to looking at cost efficiencies for them. And the way that we've structured the company just really addresses that well. And, so while we don't have a crystal ball, we feel, confident in our ability to navigate through, the choppy waters as they, hopefully settle down and we can move to a more normal environment, but feel like we're well positioned regardless. Jason Seidl: Okay. So that lowering weight per shipment is not that much of a cause of concern, then? Judy McReynolds: Well, it's been there. we've seen that and have navigated pretty well. We saw, a nearly 30% improvement in operating income in the. In the second quarter. And that was a in the face of some cost challenges and some macro challenges, but was overcome by a lot of great efforts to improve our operation, that relate to efficiency efforts as well as the completion of some tier one technology projects that we have. Operator: Our next question comes from Daniel Imbro with Stephens. Please go ahead. Daniel Imbro: Yes. Hey, good morning, everybody. Thanks for taking our questions. I want to start on the pricing side. I guess looking at the second quarter, revenue per hundredweight, including fuel, was up sequentially, but fuel was down 1Q to 2Q. So I guess is the right read here that core pricing ex fuel actually accelerated in your business? And can you just talk about how you're thinking about core pricing trends into the back from the 2Q level? Christopher Adkins: Sure. Hey, Daniel, this is Christopher. So I would say in terms of just pricing trends, we remain disciplined in making sure that we're getting increases on our core business like we talked about, we got a 5.1% increase in the second quarter on our deferred negotiations. And that's just annual increases that we take on those customers honestly really proud of that result from our sales and our pricing team to get that just in this challenge freight environment that despite the environment, our customers are recognizing the value that we're providing and we're able to get good increases. I was looking back over history. That's actually the fourth best increase over the last 20 years that we've gotten in the second quarter. So really great result. And that's something that will continue through the rest of the year as well. So like you said, there was some progression from first to second. We'll continue to, to get good increases throughout the rest of the year as well. Daniel Imbro: And then if I can follow up maybe on the back half or outlook. Matt, I think you said or flattish in 3Q from 2Q? I think cost inflation is moderating a little bit. So I guess if revenue growth is improving and pricing is improving, why wouldn't that get a little bit better? And then can you just remind us what normal seasonality is on or from 3Q to 4Q. As we think about that? Thanks. Matt Beasley: Yes, absolutely. So, I would say generally revenue levels are fairly consistent from the second quarter to the third quarter. You know, we did talk about, a range of zero to 100 basis points of improvement. when we look at things sequentially, just kind of considering the environment and considering the freight mix that we're looking at for the third quarter, we do think that it's. And just considering our cost profile that we're looking at, we know we do have an increase that goes in July 1 for our wage rate on our union contract and then a benefit increase that goes in, in August, which are at moderate levels but are still a little bit higher than what seasonality has been outside of last year. And so all those taken into account puts us at currently an expectation of roughly flat. I mean, certainly we had a very strong operational execution quarter in the second quarter. We've talked about just where our efficiency and productivity metrics, service metrics are very strong compared to recent history. And some of those metrics approach the highest in our company's history. And so certainly if we can continue that strong performance and that momentum into the third quarter, I'd say there's some potential for an improvement off of that, off of that flat outlook. And then as you're looking from the third quarter to the fourth quarter, typically we do see an increase in operating ratio when you move from the third to the fourth quarter. You know, that has been up to 400 basis points, if you look over the last few years. But I think with the revenue initiatives, with the strong pipeline that we talked about and with some of the efficiency work and just some of the productivity performance that we've seen in our network, I think we've got, a lot better opportunity for a more consistent result from the third quarter to the fourth quarter than we've had in past years. Operator: Our next question comes from Jordan Alliger with Goldman Sachs (NYSE:GS). Please go ahead. Jordan Alliger: Oh, hi. Sorry about that. Yes, I just wanted to follow-up a little bit on some of the trends that you had put out there for July. I think there was a couple more operating days in July versus a year ago, sort of maybe distort some of the per day growth? Just curious, is there a way to give some sense for how August and September might look broadly in terms of tons per day or revenue per day, taking into account the norm, the days, I suspect it should start to look better on a year over year basis for both those relative to July? But I'm just curious if you have any thoughts on that. Matt Beasley: Hey, good morning, Jordan. So I think just, just the typical seasonality of our business, we see as you, as we all know, July has a holiday in it and we see that just typically their progression of growth from July to August to September, September being the end of quarter month, tends to be the strongest in the quarter. So we see upside in terms of just tonnage and per day shipments per day as you just move sequentially through the quarter. Jordan Alliger: Okay. And I guess sort of like, the same thing. we do start to enter a period of, tougher comps for the industry. post a year ago with yellow and now there's a bunch of terminals opening. I know you gave some color around price. It would seem like industry discipline is still pretty strong, but there's been some recently pretty difficult ism readings that came out yesterday, which wasn't particularly good. I mean, how do you think about the industry's ability to sort of take into account these terminal openings and these new orders index, which continues to be pretty soft? And how does the industry keep core pricing firm? Thanks. Seth Runser: Hey, Jordan, it's Seth. We're really looking at things sequentially because we think that's a better way to view what's going on with all the market disruption that you mentioned. So when you think about the ten year history on the shipments to Christopher, what he was talking about, normally they decline from June going into July, and we've actually seen about a half a percent increase as well as tonnage. We've seen that same type of result. Normally we're down about 5% and we're down only about 2% in July. So when you think about the industry overall in capacity, what's coming in from a real estate standpoint, we still see net terminals and capacity being down from when yellow was in the market. When we look at our investments and what we've been investing in, it's really strategic. I don't think we overspend on our capacity and we've had this long term roadmap that we've been working on for many years. So we're investing where we see growth opportunities or productivity improvements. Great example of that was Lithia Springs that we opened. I mentioned in my opening comments a 16% improvement in productivity almost overnight. So we're really focused on the service improvements because we believe that's what's going to lead to long term customer value. And we're seeing some amazing numbers there. Continue to win some external awards, but we think by focusing on the customer, that's going to position us well. But I do think industry capacity overall is going to be down over the long term. With this yellow capacity, there's still about half of their facilities not back online. Operator: All right. Our next call comes from Ken Hoexter with Bank of America (NYSE:BAC). Please go ahead. Ken Hoexter: Hey, great. Good morning and congrats, Dave, Seth and Matt on your -- Dave, on your moving on and Seth and Matt new positions you threw out there, the comment in it that peers were taking more share. I think the last few questions asking about price competition trying to get at that what -- maybe you can define how they're being aggressive in winning that share if it's not being on price? Because I think Judy also mentioned that somewhere we're just moving to more -- to different price providers. So maybe you can compare, contrast the comment about the peers taking share. Christopher Adkins: Ken, this is Christopher again. Just to clarify, that comment was really about the disruption from late last year. So we onboarded some core business in that late July, August time frame. We were able to be there for our customers. And honestly, there are prices that were substantially higher than what Yellow (OTC:YELLQ) was providing them. And then there were some of those customers that were able to find cheaper options there. But that was probably over the course of the next 30, 60 days, that's all settled out. That was -- that quickly settled in the second half of last year. I see it at a much more consistent basis now and moving forward. Ken Hoexter: All right. Great. Then if I can just get a follow-up then on -- I just want to understand the transactional thing has caused so much confusion, I think, with your volumes, right? I mean, normally, when a company is losing 20-plus percent volumes, you're kind of scared and running for the hills, but yet your pricing is up 25%. So that tells you that the core is really kind of taking off here. But if you're still down 20% on volumes and your systems were kind of created that you could maybe do it more variable, why is it such a vicious move if you're not filling it up and the opportunity to keep taking that transactional volume with accommodative pricing, what's missing there that we're seeing such -- maybe such huge swings in that transactional volume. Seth Runser: Yes. So I think you got to kind of rewind the tape on that because 20 -- I go back to 2023, we continue to see the weakness in the macro. So we use that transactional tonnage to fill our network and keep employees working. When you think about the years throughout the pandemic, very challenging to find qualified CDL employees. So we thought that was the right strategy at the time. We were also going through our contractual negotiations as well, just as a reminder. So we started to see the Yellow story play out. So we wanted to keep our people working, but we also saw that, that could potentially happen. So after we got clarity on our cost with the ratification of our contract, the demise of Yellow, I think what we did, shifting strategies to more core business, what we really focused on was serving those core customers that come at a better price, better margin, more consistency, which allows us to plan labor much more consistently and why you're seeing some of the productivity gains. But it really is truly just a mix in our business. And I think it worked well when you look at our second quarter, generating $21 million more in op income with less top line revenue and almost $31 million worth of extra contractual costs. I think we handled that very well. But the way we really target transactional business is it's a daily decision based on profit maximization and capacity in the network. So I think now that our core is in a good spot with the Yellow demise, I feel like you're going to see more consistency as we move through the rest of the year and less of these wild swings. But it's probably going to take till about November to get there just because of the Yellow situation, then we have the cyber event later in the year, and everything was just still sorting out like Christopher pointed to. So that's why we like to look at sequential trends, and we feel pretty good about the progress we've made. Ken Hoexter: Can you clarify what percentage is left of the total base that's transactional versus contract or core sorry? Seth Runser: Yes. We don't provide that number, mainly because it changes so often. So the business is primarily core. Transactional business is really to help maintain consistency in the network and allow us to be positioned to when the network -- when the market does change. When you think about what we did in the first half to what we're doing moving forward, we feel like our mix is in a much better place and you'll see that. Operator: Our next question comes from Bruce Chan with Stifel. Please go ahead. Matthew Milask: Good morning. This is Matt Milask on for Bruce. On the Asset-Light business, can you comment on the mix of spot versus transaction at the moment? Christopher Adkins: The current mix on the truckload business, I mean, if you think about Asset-Light for us overall, that's several services. But on truckload business, we're roughly in that 60-40 range on contract versus spot. The other thing that's going on in truckload, if you look at kind of what we're doing year-over-year, we're continuing to see improvements in productivity and continuing to work through a strong pipeline of opportunities and really looking to the future and well positioned to grow as the market improves. Matthew Milask: Can you walk us through the mechanics of the guide for the brokerage OR being flat, maybe what you're expecting in terms of gross margin compression, if any, and maybe some opportunities to take out some more costs. Christopher Adkins: Yes. The guidance there is basically attributed to the market conditions and just not seeing a strong indicator of a strong improvement in the second half. We'll continue to work through the opportunities that we mentioned in our pipeline. We also have a good road map of efficiency gains that we can see play out as we implement new technology and process. So we will continue to improve efficiency as we move through the rest of the year. But most importantly, we want to be positioned for the market to improve and to take advantage of that and grow as we see the market start to improve. Matthew Milask: Great. And lastly, can you remind us of where you are in terms of door capacity utilization? And is there a way to tell what that might be if you wound the transactional spot business down to zero? Seth Runser: Yes. We feel like right now, as far as our excess capacity is what you're asking? Matthew Milask: Sure. Seth Runser: Okay. Yes. So we estimate that we have about 15% to 20% excess capacity in our network right now. And that includes people, real estate, equipment. We've talked about our real estate plan quite a bit. So we feel like we built up to be able to handle this eventual market swing, and we continuously optimize the network and adjust based off the opportunities that we see to better service our customers. We really have a long-term outlook here. So we don't want to limit our growth potential when the market does turn, and that's why we've made the investments that we're making, we've continued to make throughout our network. So we feel like if the market does turn, we get more core business we want to grow with that. And we think transactional is a way for us to balance our network better and optimize that daily based on what the freight demand is and what the market prices are. So it's really a daily optimization and when the market turns, it should benefit us. Operator: Your next question comes from Tom Wadewitz with UBS. Please go ahead. Thomas Wadewitz: Yes, good morning. I wanted to see -- you were asked a little bit about the weight per shipment on July, kind of, I think, July getting a little lighter versus June. But I'm not sure if I understand what the perspective is or got the perspective. Do you think that's like softness in economy a little bit? Or is that a function of some mix, and you mentioned project business going away? Was that project business heavier? Just wanted to see if you could give a little more thought on the kind of lighter weight per shipment in July versus June. Christopher Adkins: Tom, it's Christopher. I'd say it's both. It's the economy just being softer than obviously, we'd like to see. I think we've talked at length in the past about higher weight per shipment is a sign of an improving economy. And that hasn't turned the corner yet even on our core business. And then it's really from a year-over-year perspective, it's really all about this mix -- the majority of this mix management, just moving more towards core business that tends to have a lower weight per shipment than the transactional business. Thomas Wadewitz: So do you think the July look is representative and stable just in terms of mix of business as well as kind of, I guess, some of the business that had moved away. Is that the right look? Or do you think it's kind of trending further in terms of lighter weight per shipment as you look to August, September, 4Q? Christopher Adkins: I would say I don't see anything significantly changing within our view right now. Obviously, things could change, but what we've seen from June to July feels consistent. And obviously, moving forward, we'd love to see that improve, but we're still -- we're positioned well to respond to whatever the market gives us there. Thomas Wadewitz: Right. Okay. And then on the Asset-Light side as well, it sounded like you saw a little bit of softening in July, too. Is that just freight activity market getting softer? Or what's the Asset-Light read on what you're seeing in July? Christopher Adkins: Yes. We are seeing some drop in demand from current customers. A lot of that was associated with the first week of the month with the holiday. And then as we just continue to work through opportunities and make sure we're making good selections on the shipments that we add and that type of thing that impacted that as well. Operator: Our next question comes from Chris Wetherbee with Wells Fargo (NYSE:WFC). Please go ahead. Christian Wetherbee: Hey, thanks. Good morning, guys. I guess maybe I wanted to come back to sort of overall volume and maybe your strategy. So if I look at tons per day down at levels that maybe we haven't seen in quite some time, shipments may be not quite as low, but still relatively low outside of maybe 2020. So obviously, improving the mix of the business, profitability hasn't suffered during that dynamic. But I guess, are we at the point where this is the appropriate level of volume. And I know we're in a softer market now. But as market comes back, would you be looking to grow into this? I know you have capacity. I'm just kind of getting a sense of where it is because the numbers are seemingly fairly low, but still sort of under some pressure on a year-over-year basis. Just want to get a sense of what the strategy is going forward. Seth Runser: Yes. I think the results in the second quarter kind of speak to what we're doing there. We're trying to enhance profitability while having capacity for growth. So like I mentioned earlier, it's better to look at the sequential numbers, and we're seeing improvements in our core weight per shipment, we just talked about that. We expect it kind of flat sequentially. Most of that is due to the market conditions and what's going on there. So you got to think the first year of the contractual wage increases were pretty large, and we were able to overcome that. You saw the cost productivity things we did. So we feel good about that moving forward. It's a much more reasonable rate at, like this year is only a 2.7% increase all in for wages in HWP. So that's going to allow us to make some gains on growth and yield. We knew that this business would continue to shift post disruption. So that's why we're saying it's better to look at that sequential history. We believe that the environment is going to be -- continue to be kind of unpredictable. We've heard about PMI and what's going on there. But what gives us a lot of confidence in the future is a 40% increase in our sales pipeline since January, as Judy mentioned in her opening comments. We've had some of the best service numbers over the last 5 years, so we're providing value for our customers. We've been celebrating our 40-year quality anniversary, and our people have taken that to heart. We've really seen that resonate with our customer retention numbers and our efficiencies hitting multiyear high. So that allows us to improve service, capacity for growth and just it impacts the bottom line cost measure as well. So we continue to see those benefits and I feel like that momentum is going to take us forward for continued growth, and we build the capacity for it. So we're continuing to execute on growing our core business while optimizing that transactional mix based on what the market is doing. Christian Wetherbee: That's a really helpful answer. I appreciate that. And maybe if I could zoom out the lens a little bit and think about the industry over the next couple of years. So you noted, you have 15% to 20% excess capacity, I guess, if I go around sort of the horn of the other public carriers, I think having that much, maybe in some cases, more extra capacity, Yellow kind of down, cut in half from a capacity perspective in the market now. I guess do you see the market dynamics changing at all in terms of the ability to get price or profitable mix improvements as we move forward? Or is it that there is enough growth and maybe there's some freight that's outside of the market that comes back in, in a tighter environment? Just kind of curious how you might see the next sort of cycle play out for the industry? Christopher Adkins: Yes. I think we're really well positioned for growth. And I think we demonstrated that at the middle of last year when we had similar excess capacity, and we were able to meet the demands of our customers that had that disruption. We were able to onboard that business quickly without really missing a beat from a service standpoint. So really, we're playing the same playbook that we played last year. We have the excess capacity. We still have the transactional lever that we could tampen that down even further if needed, core business grows further. So I feel great about our position to bring on additional growth when it's available. Operator: Our next question comes from Brian Ossenbeck with JPMorgan (NYSE:JPM). Please go ahead. Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Let's go back on the service improvements. Just wanted to see what's the feedback from customers so far. I know the Mastio survey is going on again right now, but it's been a focal point of improving that over the last couple of years. So what are customers saying right now? And when do you think you start to see this sort of in either the freight mix or the pricing, can that start to improve next year if things kind of bounce along the bottom? Or would that really be something you need an up cycle to help monetize if service does continue to improve? Seth Runser: Yes. We really -- when you think about our service levels, we have a commitment to excellence. And historically, we've been in a really good spot on the Mastio survey. We've made a lot of improvements since last one came out. We do our own internal surveys with customers to measure our NPS and our internal scores have continued to improve consistently quarter-after-quarter, and we're seeing that in our own internal metrics as well because we've improved tactical execution, the shipment visibility. I mentioned in my opening comments, we've made a lot of efforts to improve in that area. And all the optimization efforts, when you improve efficiency, you improve your throughput, which in turn generates better service for our customers. So we have better visibility into network issues. So if we do see an issue popping up, whether it's labor, whatever it is, we can react much faster and resolve those issues before it impacts our customers. And that's because of all the data that we have and all the infrastructure that we built around network visibility. So the real estate plan, obviously gives our customers more capacity. But I feel like with our service metrics being at a 5-year high, continued internal NPS improvement, we feel like that's going to continue to benefit our customers. I've spent a lot of time with customers throughout the second quarter, and they've communicated back just the difference that they feel in our service level. And we think that translates to long-term value for our customers. Christopher Adkins: Yes. Just from a price perspective, yes, obviously, the value prop that Seth is describing plays into that price. And really, we just want to be at a consistent place where our price is outperforming our cost increases through -- so we're winning both from a price standpoint and from a cost management standpoint to improve our op income over time. So the value prop is definitely a big play there in terms of just getting the increase and retaining the customers that we have. The other thing I would just comment on is that our price is the highest in the market. So our price is already at a really good place. And so there's an opportunity likely for other carriers to catch up with where we are on a price basis. Brian Ossenbeck: Okay. That's helpful. Just to switch to the broader truckload market, it doesn't sound like you're seeing or expecting much of an improvement from that perspective. Just wanted to get maybe a little more commentary on that, what you're seeing here in July and into the typical peak season and just in general, how that would impact some of the truckload spillover freight in ABF and how you might be able to offset some of that on the Asset-Light side? Christopher Adkins: Yes. I mean, from an overall perspective, we feel like we're at the bottom, but we're not really seeing anything that's just a strong indicator that things are going to improve rapidly. We're like a lot of others, just feel like we're at the bottom and moving towards a time of improvement. But one of the things that we are confident in is our team, how we're positioned, the MoLo team specifically in the truckload space, we provide a great service. Seth mentioned NPS. That's one of the kind of high points that we have with our truckload service. We see customers continuously telling us that we're doing a great job there and really appreciate the service and value we provide. So we're well positioned as the market recovers. But like a lot of others, right now, we're just looking for that improvement, but we're not seeing anything that tells us that there's a dramatic improvement coming in the third quarter. Operator: Our next question comes from Stephanie Moore with Jefferies. Please go ahead. Stephanie Moore: Hi. Good morning. I wanted to touch on -- I think you mentioned clearly driving some cost initiatives and other productivity initiatives in the second quarter and expectations so that continue as the year progresses. And I think on both the Asset-Based and Asset-Light side, could you maybe give us some more examples of some of the actions that you've been putting into place on both sides of the business? Seth Runser: Yes, Stephanie. When you think about how many cycles and what we've been through, we have a long history of adapting to challenging environments. And we really go out to the field, listen to our people, get feedback from employees, and that really shapes what we have to do to service our customers better. So we built those tools for better network visibility, labor planning. We invested in those operational experts that I mentioned earlier. They've only been to 4 of our largest locations so far. So throughout the third quarter, they're going to visit the next 3, which are very large distribution centers as well, and we'll continue that throughout the year. We also rolled out city optimization last year. We saw a material benefit from that. We're rolling out the next 2 phases of that, that have been in pilot mode throughout the second quarter. So we think we'll get to operationalize those in the third and fourth. We're also in the process of rolling out new dock software and that creates better visibility for our people, our customers and allows us to see, by employee, productivity levels, and we have that implemented at 97 locations, and we think we'll finish that rollout in the first quarter of 2025. I mentioned the productivity improvements in Lithia Springs and what we saw in Olathe in the first quarter. So we'll continue to see productivity as these real estate initiatives come online. We also have a lot of projects in pilot phase right now that we expect will operationalize throughout the back half. So we're really excited about our pipeline of innovation projects and the efficiency gains we're going to see as we move through the back half of the year. That's some of the upside that Matt talked about. Stephanie Moore: Great. And then just switching gears to the truckload side of the business. I'd love to hear your thoughts on what you're hearing from an overall freight cycle standpoint, I think we've heard of capacity exits for some time now, but really not to the extent that or the magnitude that we would hope to get us out of this. So I'd love to hear your overall thoughts on just capacity exits on the supply side of the equation. Christopher Adkins: Yes. I mean what we're seeing is the capacity is coming out of the market. It's just at a slow pace. And so without a dramatic increase in demand, it's just taking some time for that to get to the right balance. But we are seeing movement in capacity coming out of the market, which is a movement towards a more balanced market. Like I said, it's just slow -- kind of a slow movement in that direction. Operator: Our next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead. Jeffrey Kauffman: Thank you very much. And best to David Humphrey's and congratulations, Seth and Matt. Really 2 questions. When we think about the cost per pound versus revenue per pound dynamic, it's been shifted negative because of the big wage increases in the union contract. Now you have the July, August increases. When do we get a chance to offset that with the GRI or an increase in the revenue per pound? And when do we see that relationship flip more to the positive? Do we have to wait for January 1? Is it something that could start to happen in the fourth quarter? Christopher Adkins: Yes. Jeff, it's Christopher. Just from a GRI perspective, so our last GRI was October -- early October of last year. I think our normal trends are in that 10- to 12-month cycle. So if you kind of do the math there, we're getting up close to that GRI cycle that we would normally have. Jeffrey Kauffman: Okay. But you haven't made any announcement at this point that's probably still a little ways away, but we don't have to wait for January to see a GRI, hopefully. Christopher Adkins: Yes. If history plays out like it normally does, like I said, 10, 12 months. And yes, we haven't announced anything formally yet, Jeff. Jeffrey Kauffman: Okay. No, I thought the LTL business looked great. My big question is on the Asset-Light and not to be throwing rocks here, but it doesn't make sense to do business for practice. And it feels like we're doing that with Asset-Light. Now I recognize the difference in the contingent consideration accounted for about $14 million of the swing. So I do understand that that's a little odd. But with Asset-Light so challenged. How are we raising contingent consideration for MoLo and maybe break down what's going on, on the Asset-Light side a little bit because it's not just one business, it's a series of businesses. Why is the loss not getting better in the third quarter? Do we have another contingent consideration headwind that we might be looking at? Or is there an issue with the business that we used to call Panther because there's just no emergency shipments going on? How do we turn the corner on these losses? Because I think all of us would argue these losses are bigger than we ever thought we'd see at the Asset-Light business. Matt Beasley: Yes. So Jeff, it's Matt. Maybe I'll just walk through at a high level. I mean certainly, we've made some comments about the business, and we do feel like that we're positioned well there. But I'll just touch a little bit on your questions about contingent consideration because you're right. I mean that's something that we revalue under the accounting standards every quarter. We look at a simulation of the potential outcomes for that business as it relates to the earnout that we entered into that structured some additional value, some performance metrics were met when we purchased that business. And so as we've looked at that, you're right, on a year-over-year basis, there was a change as we look at that. And some of that just has to do with just getting closer to the potential earn-out period. You just got the time value impact coming into effect as that payout period is getting closer. But I would say when we're talking about the outlook that we're giving or the -- in terms of the expectations on being flat from the second quarter results to the third quarter results, we're not really considering that impact. That's kind of exclusive of that impact. That's not something that we're projecting forward to the third quarter. And then I think in that business, there's the dynamics that we have been talking about. I mean certainly, we've done a great job with the productivity and efficiency work that we've been doing. You've seen that in the results. I think we're taking the right steps now to make sure that we're prioritizing the profitable business on the truckload side and keeping the right relationships with customers. I mean if you look at all of the industry forecast, that business is going to turn. The shift has been maybe a little bit more delayed than others were anticipating. But I think from where we are with the customer service and customer satisfaction level, technology efficiency will be in a good spot. And you're right. I mean that is a mix of businesses that provide a lot of different services to our customers that they're appreciating. Certainly, part of that is our managed transportation business and part of the significant growth in the pipeline that we talked about earlier has to do with just the continued interest that we're seeing in that solution, and those wins are very significant wins when they come on board. I mean that business comes on in very large chunks, and we're having some very good late-stage discussions there. Expedite business is certainly part of that business as well, international, I mean, so there's multiple different solutions that come in there. And again, we are in a period, kind of bouncing along the bottom here, but we do know that, that business is going to turn and we're in a good position when it does. Jeffrey Kauffman: Yes. Judy McReynolds: Jeff, this is Judy. I just -- I want to just speak to the strategic decision to own the asset-light solutions that we have. It's extremely important to our customers to be able to do business with a logistics company that has solutions like we do with truckload, ground expedite, the managed solution that Matt was just talking about. And so it is -- when I'm in customer conversations, we have the right conversations. And it's helped us to be able to execute through some of these market disruptions that we've seen. I mean it's really positioned us well to do that. We're in a market that's unusual, no spot market because of the carrier capacity that's here, but we are well positioned when the -- that changes and we have a better demand environment. And again, we have the right conversations with customers -- and when we do well with customers, that turns into shareholder value. And this is all a part of the story of our integrated solution set that we go to market with that I feel great about. Jeffrey Kauffman: Judy. It's just -- I've had 10 other asset-light divisions report this quarter, and yours is by far the worst performing in terms of operating margin change. And I get that a lot of that's to contingent consideration. But historically, it's just done so much better than that. So I'm just trying to figure out what's weighing on this a little more [indiscernible] else's... Judy McReynolds: Yes. I know what you're saying -- I know what you're saying, Jeff, but when we look operationally, we put that contingent liability as a part of the overall purchase price for the company, which I think we would all agree, if we're able to pay something on that, that means the results are there. And that all -- that story will be told in 2025. And none of us can help the way that we have to account for it. But I wouldn't put those dollars in as operational because that's not the operation of the business. That's a part of the purchase price, just to clarify. Jeffrey Kauffman: Can I just get one clarification. When you say operating loss should be flat, I think that's what I heard. Are you saying the dollar amount of operating loss? Are you saying the operating margin? Are you saying the revenues? When we say flat 3Q versus 2Q, what specifically is that we're talking about? Judy McReynolds: Yes. I mean I think... Matt Beasley: Yes. We're talking about the non-GAAP operating loss that we had. We had a $2.5 million operating loss in the second quarter. We're hopeful to improve on that, but right now, particularly based on the trends that we're seeing in July, we're saying that we're expecting to be roughly at that same level as we move to the -- sorry, as we move to the third quarter. Amy Mendenhall: Thanks, Jeff. Operator, it looks like we've got one more in the queue, so we can take one more question. Operator: Perfect. Our final question for today comes from Ravi Shanker with Morgan Stanley (NYSE:MS). Please go ahead. Ravi Shanker: Great. Thanks for the time. Maybe you're going to switch it up a little bit and follow up on the productivity initiatives. Is there a way to quantify how much of an OR lift we can get from those initiatives alone, irrespective of macro? And also, would you characterize these initiatives as kind of catching up to the rest of the industry? Or are you going to be pulling ahead with industry-leading initiatives here? Seth Runser: Yes. We provide our long-term OR guidance of the 10% to 15% margin, and that's really where we're leaning towards. And we've tried to get there consistently over the past few years. So if you look at, I believe it's Page 12 of the earnings presentation, that 840 basis point improvement we've had over the last few years. So I feel like we've made a step in the right direction on the OR, but we got more work to do, and that's why I'm so excited about Matt's leadership coming into the President role of ABF because he really spearheaded a lot of those efficiency improvements that we saw, the real estate plan we've talked about. So obviously, a lot of things depend on the macro. We need top line growth, and we've talked about that a lot of others have as well. But we feel like we still have a lot of runway on the efficiency side of things with the amount of projects we have in the hopper. So it's hard to give guidance on what that's going to translate to in terms of OR until we get through some of this pilot phase, but we feel good about our future and where we're going. Ravi Shanker: Got it. Maybe as a follow-up. I think, Judy, you opened the call by saying that your sales pipeline is up 40%. Is there anything we can read into kind of what that means for what the cycle looks like in the next kind of 6, 9, 12 months? Or is that just long-term statistic? Judy McReynolds: Well, it's a statistic that covers a span of time, but I wouldn't necessarily characterize it as longer term, although there are elements of it that the longer-term sales cycle like the managed part of it. But it's -- what's good about what we're seeing is that we're getting into later stages on those opportunities from where they were at the beginning of the year. So what I think when I see that is just about how we'll go into the latter part of the fourth quarter and maybe into 2025. And it's what I've always wanted our team to do, which is to outpace what's going on in the macro, particularly if it's negative and to really control our own destiny in terms of the growth that we have at the company. And so that's the way I think about it. It is not super long term or anything, though, I think we are replenishing it every day. Operator: I will now turn the call back over to Amy for closing remarks. Amy Mendenhall: Thanks to everyone for joining us today. We appreciate your interest in ArcBest. Have a great day.