ArcBest Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; compared with the corresponding 2019 periods. ArcBest provides freight transportation and logistics services through its Asset-Based, ArcBest (asset-light), and FleetNet segments. The filing attributes the sharp downturn principally to COVID-19 and its effects on economic activity and customer demand.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $627.4 million | $771.5 million | $1,328.8 million | $1,483.3 million |
| Operating income | $20.4 million | $35.2 million | $28.2 million | $43.8 million |
| Net income | $15.9 million | $24.4 million | $17.8 million | $29.3 million |
| Diluted EPS | $0.61 | $0.92 | $0.68 | $1.10 |
| Operating cash flow | Not separately stated for Q2 | $82.1 million | $80.5 million |
- Q2 revenue fell 18.7%; operating income fell 42.0%, and net income fell 34.9% year over year. Approximate operating margin was 3.3%, versus 4.6% in Q2 2019.
- First-half revenue declined 10.4%, operating income 35.5%, and net income 39.2%. Approximate operating margin was 2.1%, versus 3.0% in the prior-year period.
- Consolidated Adjusted EBITDA, a non-GAAP measure, was $55.9 million in Q2 versus $67.2 million; first-half Adjusted EBITDA was $92.4 million versus $107.0 million.
- First-half investing cash use was $65.8 million, including $16.2 million of net property and equipment purchases and $6.5 million of internally developed software. Financing provided $188.1 million, largely reflecting new borrowing.
- At June 30, cash and cash equivalents were $406.3 million and short-term investments were $167.7 million. Total debt was $532.9 million, including $250.0 million under the revolving facility and $85.0 million under the receivables securitization program. Cash and short-term investments exceeded debt by approximately $41.1 million.
- Current assets were $902.0 million and current liabilities $439.7 million. The company reported $28.0 million of available capacity under the receivables securitization program; the initial $250 million revolving facility was fully drawn at quarter-end.
- Quarterly declared dividend remained $0.08 per share. The company repurchased no shares in Q2; first-half purchases totaled $3.2 million.
Segments and material changes
- Asset-Based: Q2 revenue declined 17.8% to $460.1 million; operating income fell to $21.0 million from $36.2 million. Tonnage per day declined 13.8% and billed revenue per hundredweight, including fuel surcharges, fell 4.0%. The operating ratio worsened to 95.4% from 93.5%.
- ArcBest: Q2 revenue declined 16.4% to $151.5 million; operating income was $1.3 million versus $2.1 million. Shipment volume and revenue per shipment fell, while higher purchased transportation costs relative to customer pricing compressed margins.
- FleetNet: Q2 revenue fell 10.2% to $46.4 million and operating income declined to $0.8 million from $1.0 million, primarily as reduced customer miles lowered roadside service events.
- Management cited reduced demand, altered freight mix, and lower shipment, tonnage, and service-event levels. Cost reductions and improved operating productivity helped preserve positive earnings. Lower fuel costs and reduced labor and other expenses partly offset lower revenue; depreciation and innovative-technology costs were higher.
Outlook, risks and unusual items
- Management reported sequential improvement in business levels in May, June, and July, while July demand remained below the prior year: Asset-Based billed revenue per day was approximately 6% lower year over year and ArcBest segment revenue per day approximately 3% lower. These are preliminary monthly updates, not full-year guidance.
- After quarter-end, ArcBest repaid $45 million of securitization borrowings on July 31 and expected to repay the $180 million revolving-credit draw during Q3. It planned to restore some salary, 401(k) match, and director-fee reductions; related Q3 expense was expected to increase by approximately $10–$15 million sequentially from Q2.
- 2020 net capital expenditures were estimated at $95–$100 million, and depreciation and amortization at approximately $110 million. Management expected Q3 “Other and eliminations” losses of about $4 million and full-year losses of about $17 million.
- Management’s impairment assessment assumed economic recovery beginning in late 2020 and continuing into 2021; it recorded no goodwill or indefinite-lived intangible impairment at June 30. Further deterioration could result in impairment, particularly in the ArcBest segment.
- Risks include the duration and severity of COVID-19, recession and freight demand, pricing and fuel-surcharge recovery, purchased transportation costs, execution of cost and technology initiatives, customer credit losses, cybersecurity and business continuity, and future financing conditions. The Central States multiemployer pension plan was in critical and declining status as of January 1, 2020; its reported funded percentage was 24.8% as of January 1, 2019.
- The company reported compliance with credit covenants at June 30. Routine legal matters were not expected to have a material adverse effect; environmental cleanup reserves were $0.5 million. No material legal contingency amount beyond the disclosed reserves is specified in the filing text.
Important facts for investors to verify
- Whether the expected Q3 repayment of the $180 million revolver draw occurred, and how cash and debt changed afterward.
- Whether sequential revenue improvement continued and translated into stronger margins as temporary cost reductions were reversed.
- Actual full-year capital spending, operating cash flow, and performance against the stated capital expenditure range.
- Whether COVID-19-related demand, customer payment patterns, and receivables allowances changed materially after June 30.
- Progress and costs of the ABF freight-handling technology pilot, alongside impairment assumptions and the outlook for the Central States pension plan.