ArcBest Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Comparisons are with the corresponding 2020 periods; results were affected by pandemic-related weakness in 2020, especially in the second quarter. ArcBest operates Asset-Based freight, asset-light logistics (ArcBest), and FleetNet businesses.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,016.7 million | $795.0 million | $2,794.8 million | $2,123.7 million |
| Operating income | $87.6 million | $39.8 million | $194.1 million | $68.0 million |
| Net income | $63.7 million | $29.4 million | $148.0 million | $47.2 million |
| Diluted EPS | $2.38 | $1.11 | $5.51 | $1.79 |
| Operating margin | 8.6% | 5.0% | 6.9% | 3.2% |
Q3 revenue rose 27.9% and net income more than doubled year over year. For the nine months, revenue increased 31.6%. Management attributed growth to stronger demand, higher pricing, and improved business levels. Asset-Based revenue rose 21.2% in Q3; combined ArcBest and FleetNet revenue rose 38.8%.
- Q3 segment operating income: Asset-Based $83.6 million, versus $36.6 million; ArcBest $10.2 million, versus $4.8 million; FleetNet $1.3 million, versus $1.0 million.
- Cash flow: Net cash provided by operations was $238.3 million for the nine months, versus $151.3 million. Investing activities used $32.1 million; financing activities used $102.0 million.
- Liquidity: At September 30, cash and cash equivalents were $408.2 million and short-term investments were $60.3 million. Current assets were $953.1 million and current liabilities $615.7 million.
- Debt: Long-term debt, including current maturities, totaled $244.4 million, down from $284.2 million at year-end 2020. Operating lease liabilities totaled approximately $110.0 million. Available borrowing capacity was $200.0 million on the revolving facility and $39.9 million under the receivables program at quarter-end.
- Shareholder returns: The quarterly dividend remained $0.08 per share. The company paid $6.1 million in dividends and repurchased $8.1 million of shares during the nine months.
Material changes and notable items
- Asset-Based operating ratio improved to 87.7% in Q3 from 93.5% a year earlier. Pricing/yield and tonnage increased, but purchased transportation costs and fuel expenses also rose; labor and equipment capacity constraints weighed on productivity.
- ArcBest segment revenue increased 40.5% in Q3, with revenue per shipment up 27.0% and shipments per day up 9.7%. Purchased transportation costs rose faster than customer pricing, compressing segment margins.
- FleetNet Q3 revenue increased 31.6%, reflecting more service events and higher revenue per event.
- Q3 results included $6.9 million of Asset-Based freight-handling pilot costs and $1.6 million of MoLo acquisition transaction costs. Nine-month results also included a $6.9 million gain on sale of a moving-business subsidiary and $8.6 million of gains on property sales.
- Operating cash flow benefited from higher earnings and increased payables/accruals, while higher receivables absorbed cash. Accounts receivable increased $104.1 million from December 2020.
Outlook, risks and contingencies
- Management estimated 2021 capital expenditures, net of asset-sale proceeds, at $100–$110 million; $40–$50 million of planned spending was expected to shift into 2022 because of equipment shortages and manufacturing delays. Preliminary 2022 capital expenditure expectations were $225–$250 million.
- Management expected approximately $7 million of freight-handling pilot costs in Q4 2021 and estimated “Other and eliminations” losses of about $12 million in Q4 and $33 million for full-year 2021. These are estimates, not guaranteed results.
- Preliminary October indicators showed Asset-Based billed revenue per day up approximately 20% year over year and ArcBest segment revenue per day up approximately 46%. Management cautioned that demand, pricing, capacity, and operating results remain uncertain.
- MoLo Solutions acquisition closed November 1, 2021, after quarter-end. ArcBest paid $235 million in cash; additional earnout consideration is possible, with cumulative additional consideration of $215 million at 100% of specified 2023–2025 EBITDA targets. The company said acquisition accounting was incomplete when the filing was prepared.
- On November 2, 2021, ArcBest entered a $100 million accelerated share repurchase; 709,287 shares were initially delivered, with final settlement expected in Q1 2022. A separate $30 million credit-facility draw occurred November 3.
- Key risks include uncertain pandemic and economic effects, inflation and fuel costs, equipment and labor availability, purchased-transportation capacity and pricing, cybersecurity and technology execution, collective bargaining and multiemployer pension exposure, and integration/performance of MoLo. The Central States multiemployer pension plan was reported in critical and declining status; federal pension relief was expected to affect plan funding, but ArcBest was still evaluating its impact.
- Routine legal matters were not expected to materially affect results. The company had accrued for an EPA stormwater compliance matter and disputed a state sales/use-tax assessment; management did not expect either resolution to have a material adverse effect. Actual exposure may change.
Investor verification priorities
- Check whether strong pricing and demand persist, and whether higher purchased-transportation, fuel, labor, and equipment costs limit margins.
- Assess MoLo integration, realized synergies, acquisition accounting, and the potential earnout against the cash purchase price.
- Track cash generation and working-capital needs alongside planned 2022 capital spending, debt service, and the $100 million share repurchase settlement.
- Monitor multiemployer pension developments, labor availability and bargaining, and the company’s ability to manage operational capacity constraints.
- Review the full filing and subsequent reports for updates to legal/tax contingencies, cybersecurity risks, and the freight-handling technology pilot.