ArcBest Corporation — Q1 2021 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2021, compared with the same 2020 period. ArcBest provides freight transportation and logistics services through Asset-Based (ABF Freight), ArcBest asset-light logistics, and FleetNet. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $829.2 | $701.4; up 18.2% |
| Operating income | $32.2 | $7.8; operating margin 3.9% vs. 1.1% |
| Net income | $23.4 | $1.9; net margin 2.8% vs. 0.3% |
| Diluted EPS | $0.87 | $0.07 |
| Operating cash flow | $22.5 | $23.1 |
| Cash and short-term investments, March 31 | $360.9 | $369.4 at December 31, 2020 |
| Total debt, including current portion | $266.8 | $284.2 at December 31, 2020 |
Cash and investments exceeded reported debt by approximately $94.0 million. The company had $180.0 million of available revolving-credit capacity and $113.3 million available under its receivables securitization program. Q1 investing cash flow was positive $1.1 million, reflecting asset-sale proceeds and investment maturities; financing cash flow was negative $26.0 million, including $17.4 million of debt payments and $2.0 million of dividends. The declared dividend was $0.08 per share.
Material changes and operating drivers
- Asset-Based revenue increased 7.9% to $556.3 million; operating income rose to $30.1 million from $13.2 million. Revenue per hundredweight, including fuel surcharges, increased 8.8%, and tonnage per day increased 1.8%. Its operating ratio improved to 94.6% from 97.4%.
- Asset-Light revenue increased 43.4% to $311.5 million, and segment operating income was $9.3 million versus a $0.4 million loss. ArcBest segment revenue rose 53.1%, with revenue per shipment up 25.9% and shipments per day up 22.7%. FleetNet revenue increased 12.8%; operating income remained about $1.0 million.
- Consolidated results included an $8.6 million gain from selling an unused service-center property, compared with $2.2 million of property-sale gains in Q1 2020. Performance-based incentive-plan expenses increased $8.5 million year over year. Changes in life-insurance cash surrender value improved net income by $1.3 million in Q1 2021, versus reducing it by $3.8 million in Q1 2020.
- Consolidated Adjusted EBITDA, a non-GAAP measure, was $66.3 million versus $36.5 million. Asset-Light Adjusted EBITDA was $12.1 million versus $2.5 million.
Outlook, risks and contingencies
- Management estimated 2021 net capital expenditures of $150–$160 million, net of asset sales, including about $100 million for revenue equipment. It estimated 2021 depreciation and amortization, excluding intangible amortization, at $115–$120 million, plus approximately $4 million of intangible amortization. Capital spending may be adjusted to business levels.
- Management expected “Other and eliminations” losses of approximately $5 million in Q2 and $24 million for full-year 2021. ABF Freight’s freight-handling technology pilot was expected to cost about $6 million in Q2; success or expansion is not assured.
- Management said available cash, investments, operating cash flow, and borrowing capacity should be sufficient for operating needs, investment, and debt repayment. It also expected to continue quarterly dividends, subject to board discretion and other conditions.
- Management described improving economic conditions and strong April business trends, but cautioned that COVID-19, demand, capacity, pricing, fuel costs, inflation, severe weather, and operating-cost constraints could affect future results. First-quarter results may not indicate full-year performance because of seasonality.
- Multiemployer pension exposure remains significant: the Central States plan was reported 19.5% funded as of January 1, 2020 and in critical-and-declining status for 2021. Federal pension relief may improve funding, but future contribution rates and potential withdrawal liabilities remain uncertain. The ABF labor agreement runs through June 30, 2023; about 82% of Asset-Based employees were covered.
- The company had accrued an estimated settlement for a Clean Water Act compliance matter and had accrued for a disputed state sales/use-tax assessment; it plans to appeal, and additional tax could be owed if the state prevails. Management did not expect these matters or routine legal matters to materially harm results. Cybersecurity incidents, including third-party risks, were also identified as a potential threat; management reported no known incident with a material operational effect.
Important facts for investors to verify
- Whether revenue growth and improved segment profitability persist after the unusually weak Q1 2020 comparison, and how much of Q1 operating income depended on the $8.6 million property-sale gain.
- Whether asset-light purchased-transportation costs and asset-based reliance on purchased capacity pressure margins as demand and capacity conditions change.
- Actual 2021 capital spending, equipment commitments, operating cash flow, and debt reduction; purchase obligations were $139.0 million, with $133.9 million estimated due within one year.
- Developments in Central States pension funding and federal relief implementation, as well as the outcome of the disputed tax assessment and environmental matter.
- Progress, costs, and results of the ABF freight-handling technology pilot, and any material changes in COVID-19, cybersecurity, fuel, inflation, or labor risks.