ArcBest Corporation (Nasdaq: ARCB) — 2021 Form 10-K
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter filing. ArcBest provides less-than-truckload freight, asset-light logistics and truck brokerage, and fleet maintenance services. ABF Freight’s Asset-Based segment generated about 62% of 2021 segment revenues before eliminations; combined Asset-Light operations generated 38% for the year and about 44% in fourth quarter after the MoLo acquisition.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $3,980.1 million | $2,940.2 million |
| Operating income | $281.0 million | $98.3 million |
| Net income | $213.5 million | $71.1 million |
| Diluted EPS | $7.98 | $2.69 |
| Operating cash flow | $323.5 million | $206.0 million |
| Adjusted EBITDA (non-GAAP) | $427.1 million | $232.6 million |
Revenue increased 35.4%; operating margin rose to approximately 7.1% from 3.3%, and net margin to approximately 5.4% from 2.4%. Adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP results.
- Asset-Based: Revenue rose 23.0% to $2,573.8 million; operating income was $260.7 million versus $98.9 million. The operating ratio improved to 89.9% from 95.3%. Per-day tonnage increased 7.6%, shipments per day 4.3%, and billed revenue per hundredweight including fuel surcharges 14.7%.
- ArcBest segment: Revenue rose 66.9% to $1,300.6 million; operating income increased to $46.4 million from $9.7 million. MoLo contributed $120.3 million revenue and a $1.2 million operating loss after its November 1 acquisition.
- FleetNet: Revenue increased 23.9% to $254.1 million; operating income was $4.5 million versus $3.4 million.
- Cash and debt: Cash, cash equivalents, and short-term investments totaled $125.0 million at year-end, down from $369.4 million. Long-term debt, including current portion, was $225.5 million, down from $284.2 million; notes payable were $175.5 million and Credit Facility borrowings $50.0 million. Operating lease liabilities totaled $111.6 million.
- Available liquidity: At year-end, ArcBest reported $200.0 million of available Credit Facility capacity and $40.0 million available under its receivables securitization program. Management said existing liquidity and operating cash flows should fund operations, planned investment, contingent MoLo payments as earned, and debt obligations for the foreseeable future.
Material changes and unusual items
- Growth reflected stronger customer demand and pricing in an improving economy, compared with 2020’s pandemic-related demand weakness. Asset-Based revenue also benefited from higher tonnage and fuel surcharges; Asset-Light revenue benefited from tighter truckload capacity, higher pricing, volume growth, and MoLo.
- MoLo was acquired for $239.4 million initial cash consideration. The acquisition-date fair value of contingent consideration was $93.7 million; additional payments depend on 2023–2025 performance and could total $215.0 million at target, with a disclosed range of $95.0 million to $455.0 million. Purchase-price allocation remained preliminary at year-end.
- Results included a $6.9 million gain on sale of a moving-labor subsidiary and $8.7 million of Asset-Based gains on property and equipment. MoLo transaction costs were $6.0 million pre-tax. Innovative technology costs were $32.8 million, up from $25.6 million.
- Cash flow from operations increased, but working capital absorbed cash as receivables grew with higher business levels and the MoLo acquisition. The company spent $239.4 million on MoLo, invested $25.0 million in Phantom Auto, and repurchased shares, including a $100.0 million accelerated repurchase arrangement.
Outlook, risks, and contingencies
- For 2022, management estimated net capital expenditures of $270–$290 million, including about $160 million for revenue equipment, and depreciation and amortization excluding acquired-intangible amortization of $125–$130 million. Acquired-intangible amortization was estimated at about $13 million.
- Management expected innovative technology costs of approximately $38 million pre-tax in 2022; first-quarter costs were projected at $9.5 million. The freight-handling pilot remains limited and its benefits are not assured.
- MoLo was expected to operate near breakeven through most of 2022, with earnings accretion before purchase-accounting amortization expected to begin in fourth quarter 2022. These are management expectations, not guarantees.
- Key risks include inflation and higher fuel, labor, equipment, and purchased-transportation costs; labor and driver shortages; competitive pricing; supply-chain disruption; and the possibility that fuel surcharges or customer price increases do not offset cost growth.
- ABF Freight’s collective bargaining agreement expires June 30, 2023. Multiemployer pension exposure is material: approximately 56% of 2021 pension contributions went to plans reported as critical and declining before Pension Relief Act assistance. The Central States plan was projected to become insolvent within four years without legislative action; future contribution obligations remain uncertain.
- Other exposures include self-insured workers’ compensation and casualty claims ($109.5 million reserve), cybersecurity and service-provider disruptions, environmental and legal matters, and contingent MoLo consideration. Management said routine legal and identified environmental matters were not expected to materially affect results, while acknowledging estimates may change.
Investor facts to verify
- Review whether Asset-Based pricing, volume, labor efficiency, and purchased-transportation costs sustain the 2021 operating-ratio improvement.
- Track MoLo integration, performance against earnout targets, cash payments, and the timing of expected accretion; confirm final purchase accounting.
- Assess the status and funding effects of the multiemployer pension plans, including Central States and the impact of Pension Relief Act assistance and the 2023 labor negotiations.
- Compare the 2022 capital-spending and technology-cost outlook with actual spending and realized operating benefits.
- Monitor cash conversion, receivables and working-capital needs, debt and borrowing capacity, and the effects of share repurchases and dividends.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. MoLo was excluded from the year-end internal-control assessment under the SEC’s recently acquired business provision.