ArcBest Corporation (NASDAQ: ARCB) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; filed August 6, 2021. ArcBest provides freight transportation and logistics services through Asset-Based, ArcBest (asset-light logistics), and FleetNet segments. The company cautions that Q2 2020 demand was significantly depressed by COVID-19, limiting year-over-year comparability.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $949.0 million | $627.4 million | $1,778.2 million | $1,328.8 million |
| Operating income | $74.3 million | $20.4 million | $106.5 million | $28.2 million |
| Net income | $61.0 million | $15.9 million | $84.3 million | $17.8 million |
| Diluted EPS | $2.27 | $0.61 | $3.13 | $0.68 |
| Operating cash flow | Not separately presented for the quarter | $145.9 million | $82.1 million |
- Q2 revenue increased 51.3%; six-month revenue increased 33.8%. Q2 operating margin was approximately 7.8%, versus 3.3% a year earlier; net margin was approximately 6.4%, versus 2.5%.
- Consolidated Adjusted EBITDA, a non-GAAP measure, was $109.2 million for Q2 and $175.6 million for the first half, compared with $55.9 million and $92.4 million, respectively, in 2020.
- Asset-Based Q2 revenue rose 41.9% to $652.8 million; operating income was $63.9 million and operating ratio 90.2%, versus 95.4%. Asset-Light combined Q2 revenue rose 66.9% to $330.3 million and operating income was $16.3 million, including a subsidiary-sale gain. FleetNet revenue increased 28.2%; operating income was $1.1 million.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $362.6 million and short-term investments $60.0 million, totaling $422.6 million. Total assets were $1.84 billion; stockholders’ equity was $898.1 million.
- Total debt, including current maturities, was $237.7 million, down $46.5 million from year-end 2020. Cash and short-term investments exceeded reported debt by approximately $184.9 million, before considering leases and other liabilities. Current assets were $843.5 million and current liabilities $560.3 million.
- Operating cash flow of $145.9 million funded debt payments, capital investment, dividends and repurchases. Net investing cash use was $9.5 million; financing cash use was $77.7 million. Cash increased $58.7 million from year-end.
- Available borrowing capacity at quarter-end was $199.4 million under the revolving credit facility and $39.9 million under the receivables securitization program. The company reported compliance with applicable covenants.
- Dividends declared were $0.08 per share per quarter. The company repurchased $8.1 million of stock in the first half, with $41.9 million remaining under the repurchase authorization.
Material changes and unusual items
- Growth reflected stronger demand, higher prices, and comparison with pandemic-affected 2020. Asset-Based Q2 tonnage per day increased 22.7% and billed revenue per hundredweight, including fuel surcharges, rose 15.4%. ArcBest shipments per day increased 39.0% and revenue per shipment 32.9%.
- Operating results included a $6.9 million pre-tax gain from selling part of the moving business in Q2. First-half results also included an $8.6 million gain on sale of an unused service-center property.
- Freight-handling pilot technology costs were $7.5 million in Q2 and $14.4 million in the first half. A $6.8 million Q2 tax benefit from vesting restricted stock units also benefited earnings. Management noted higher performance-based incentive expense versus the prior-year periods.
- In June, ArcBest repaid $20 million on its revolving facility and amended its receivables securitization program: the stated facility amount decreased from $125 million to $50 million, while the accordion borrowing option increased from $25 million to $100 million, subject to conditions; maturity was extended to July 2024.
Outlook, management commentary and risks
- Management reported preliminary July year-over-year billed revenue per day growth of approximately 25% for Asset-Based and revenue per day growth of approximately 47% for ArcBest. July figures were preliminary, not finalized, and do not assure future performance.
- 2021 net capital expenditures were estimated at $160–$170 million, net of asset sales, including approximately $100 million for revenue equipment. Management anticipated 2022 revenue-equipment purchases $50–$60 million above projected 2021 levels and annualized service-center investment $50–$75 million above historical levels. It also expected about $7.5 million of pilot-program costs in Q3 and “Other and eliminations” losses of about $5 million in Q3 and $24 million for full-year 2021.
- Management said existing cash, operating cash generation and available facilities should fund operations, investment and debt obligations. It expected to continue quarterly dividends, subject to board discretion and other constraints.
- Key uncertainties include COVID-19 and the Delta variant, economic and freight-demand shifts, inflation and fuel-price changes, equipment shortages and higher purchased-transportation costs, labor availability and union costs, and competitive pricing. The 2018 labor agreement runs through June 30, 2023; approximately 82% of Asset-Based employees were covered by it.
- ABF contributes to multiemployer pension plans. The Central States plan was reported 19.5% funded as of January 1, 2020 and in critical-and-declining status for 2021. Management was evaluating federal pension-relief assistance; withdrawal from certain plans could create material liabilities.
- The filing discusses ordinary-course legal and environmental matters, including a self-reported Clean Water Act compliance issue and a disputed state sales/use-tax assessment. Management did not expect these matters, as accrued, to materially affect results, but an adverse tax-assessment outcome could require additional payment. Cybersecurity, goodwill impairment, and execution of technology initiatives are also identified risks.
Most important facts for investors to verify
- How much of earnings growth reflects sustained volume and pricing versus the depressed Q2 2020 comparison and the disclosed sale gains and tax benefit.
- Whether labor availability, equipment constraints and purchased-transportation costs ease without eroding service levels or segment margins.
- Actual 2021–2022 capital spending, equipment availability and returns on planned service-center and technology investments.
- Developments in Central States and other multiemployer plans, including the impact of pension-relief assistance and future contribution obligations.
- Progress and costs of the freight-handling pilot, and any developments in the environmental and tax matters disclosed in the filing.