ArcBest Corporation (NASDAQ: ARCB) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. ArcBest is an integrated logistics company operating Asset-Based, ArcBest (asset-light), and FleetNet segments. Q3 2022 results include MoLo, acquired November 1, 2021, so comparisons with 2021 are affected by the acquisition.
Financial performance
Amounts below are in millions, except per-share data and percentages. Figures compare with the corresponding 2021 period.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,351.8 | $1,016.7 | $4,079.8 | $2,794.8 |
| Operating income | $115.8 | $87.6 | $348.0 | $194.1 |
| Operating margin | 8.6% | 8.6% | 8.5% | 6.9% |
| Net income | $88.8 | $63.7 | $260.9 | $148.0 |
| Net margin | 6.6% | 6.3% | 6.4% | 5.3% |
| Diluted EPS | $3.50 | $2.38 | $10.18 | $5.51 |
| Adjusted EBITDA (non-GAAP) | $154.6 | $123.1 | $460.9 | $292.0 |
- Revenue increased 33% in Q3 and 46% year to date. Operating income increased 32% and 79%, respectively; net income increased 39% and 76%.
- Q3 revenue growth reflected Asset-Based revenue up 16% and Asset-Light revenue up 63%. Asset-Light growth included MoLo and stronger demand; its share of revenue before eliminations rose to about 43% in Q3 from 35%.
- Asset-Based operating margin improved to 13.8% from 12.3% in Q3 and to 13.3% from 9.4% year to date. ArcBest segment operating margin was 3.0% in Q3 versus 3.3% and 3.9% year to date versus 4.1%. FleetNet operating income was $0.9 million in Q3, down from $1.3 million.
- Q3 Asset-Based billed revenue per hundredweight, including fuel surcharges, increased 11.1%; tonnage per day rose 4.4%. ArcBest segment shipments per day increased 73.2%, while revenue per shipment fell 2.0% as market conditions softened.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $350.4 million, versus $238.3 million in 2021. Investing activities used $170.4 million, including $76.1 million for property and equipment net of financings and $13.9 million for internally developed software. Financing activities used $101.1 million.
- At September 30, 2022, cash and cash equivalents were $155.5 million and short-term investments $145.8 million, totaling $301.3 million, compared with $125.0 million at year-end 2021. Current assets were $998.0 million and current liabilities $757.4 million.
- Total debt, including current maturities, was $253.3 million, versus $225.5 million at December 31, 2021; cash and short-term investments exceeded debt by about $48.0 million. Operating lease liabilities were $170.8 million on the balance sheet.
- Available borrowing capacity at quarter-end was $200 million under the revolving credit facility and $40 million under the receivables securitization program. The company reported compliance with facility covenants.
- After quarter-end, the credit facility was amended to extend maturity to October 7, 2027, increase swing-line capacity, transition pricing from LIBOR to SOFR, and release specified liens and equity pledges.
Outlook, commentary and risks
- Management described economic uncertainty, slowing growth, inflation, rising interest rates, volatile fuel prices, supply-chain constraints, geopolitical conflict, and COVID-19 effects. It noted that softer conditions in Q3 moderated pricing and revenue growth in ArcBest’s asset-light business and compressed margins versus Q2.
- No specific consolidated revenue or earnings guidance is provided. The company estimated 2022 capital expenditures, net of asset sales, at $200–$210 million; it also estimated 2022 depreciation and amortization excluding acquired-intangible amortization at $125–$130 million, with acquired-intangible amortization around $13 million.
- Asset-Based labor and benefits costs under the current Teamsters agreement were estimated to rise about 2.0% compounded annually through June 30, 2023. About 82% of Asset-Based employees were covered by the agreement; future contract rates remain subject to negotiation.
- MoLo acquisition consideration includes contingent payments tied to 2023–2025 adjusted EBITDA targets. The recorded fair value of contingent consideration was $94.5 million; cumulative payments at target performance would be $215 million, with actual amounts dependent on performance.
- Notable items included a $2.1 million noncash Q3 charge for enhancements to the nonunion vacation policy; a $2.1 million tax benefit from reinstated alternative-fuel credits; and a $4.3 million noncash gain from a like-kind service-center exchange. Technology pilot and innovation costs were $10.1 million pre-tax in Q3.
- Risks highlighted include inflation and fuel-cost recovery, economic and freight-demand downturns, equipment availability and costs, carrier-capacity and pricing changes, labor relations and multiemployer pension exposure, cybersecurity and IT disruption, climate and environmental regulation, and possible goodwill or intangible-asset impairment. Management said routine legal matters were not expected to have a material adverse effect; a stormwater compliance matter had an accrued estimated settlement, and a disputed sales/use-tax assessment remained under appeal.
Investor verification priorities
- Separate organic performance from MoLo’s contribution and assess MoLo’s integration, margins, and earnout exposure.
- Track the asset-light pricing-to-carrier-cost spread as market conditions soften, alongside Asset-Based tonnage, yields, fuel surcharges, and operating ratios.
- Review cash conversion, capital spending, equipment financing, debt maturities, and liquidity capacity against planned investment and shareholder returns.
- Monitor the June 2023 labor-agreement expiration, wage and benefit costs, and multiemployer pension developments.
- Reconcile reported results for the identified gains, tax credits, vacation-policy charge, acquisition amortization, and technology costs; review the filing’s non-GAAP Adjusted EBITDA reconciliation.
- Check subsequent disclosures for the impact of the revised credit facility and SOFR transition, and for changes in legal, environmental, cybersecurity, or impairment exposures.