ArcBest Corporation (NASDAQ: ARCB) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing; comparisons are primarily with fiscal 2022. FleetNet, sold February 28, 2023, is presented as discontinued operations and excluded from continuing-operations comparisons.
Business context
ArcBest provides less-than-truckload (LTL) freight through ABF Freight and asset-light logistics services including brokerage, expedite, managed transportation and household moving. Asset-Based generated about 63% of segment revenues before eliminations; Asset-Light generated about 37%. The company reported approximately 15,000 employees.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Continuing-operations revenue | $4.427 billion | $5.029 billion |
| Operating income | $172.6 million | $394.5 million |
| Net income from continuing operations | $142.2 million | $294.6 million |
| Net income, including discontinued operations | $195.4 million | $298.2 million |
| Diluted EPS, continuing operations | $5.77 | $11.55 |
| Diluted EPS, total | $7.93 | $11.69 |
| Cash from operating activities | $322.2 million | $470.8 million |
| Consolidated Adjusted EBITDA | $369.6 million | $564.6 million |
Revenue fell 12.0%; operating income declined about 56%. The approximate consolidated operating margin decreased to 3.9% from 7.8%. Continuing-operations net income excludes the FleetNet sale gain; total 2023 net income includes $53.3 million of discontinued-operations income, including a $52.3 million after-tax gain on sale.
- Asset-Based: Revenue was $2.871 billion, down 4.6%; operating income was $253.2 million versus $381.1 million. Operating ratio worsened to 91.2% from 87.3%. Tonnage per day declined 2.4%, while shipments per day rose 3.2%; billed revenue per hundredweight, including fuel surcharges, fell 2.2%.
- Asset-Light: Revenue was $1.681 billion, down 21.4%; operating results shifted to a $12.3 million loss from $52.7 million of income. Revenue per shipment fell 25.3%, while shipments per day increased 5.3%. Purchased transportation costs declined, but not as quickly as revenue.
Cash, debt and liquidity: Cash, cash equivalents and short-term investments totaled $330.1 million at year-end, compared with $325.9 million a year earlier. Total debt was $228.9 million, including $50.0 million drawn on the revolving credit facility and $178.9 million of notes payable. The company reported $200.0 million of available capacity under the credit facility and $33.2 million available under its receivables securitization program, which matures July 1, 2024. Operating lease liabilities totaled $208.8 million. Management stated existing liquidity and expected operating cash flow should cover operating needs, debt payments and planned investments for the next 12 months and foreseeable future.
Capital expenditures, net of asset-sale proceeds and equipment financing, were $211.3 million in 2023. The company estimated 2024 net capital expenditures of $325 million to $375 million. It repurchased 930,754 shares for $91.5 million and paid $11.5 million in dividends during 2023; the quarterly dividend was $0.12 per share.
Material changes and unusual items
- Results weakened amid soft freight demand, greater market capacity and lower rates. Asset-Light revenue was particularly affected by lower revenue per shipment and mix changes.
- After a large LTL competitor ceased operations in late July 2023, ABF Freight saw stronger demand for published LTL shipments and secured additional business at profitable rates. Management noted that customer repricing and renewed rate pressure could limit the persistence of this benefit.
- The new ABF labor agreement runs through June 30, 2028. Union wage increases of 13% took effect July 1, 2023; contractual wages and benefits are estimated to rise about 4.2% compounded annually over the agreement’s term.
- FleetNet was sold for adjusted cash consideration of $100.9 million, generating a $70.2 million pretax gain. Its operating results are classified as discontinued operations.
- 2023 operating results included $52.4 million of innovative technology costs, $30.2 million of lease impairment charges, and $9.5 million estimated to settle an Asset-Light employee classification claim. A $19.1 million decrease in MoLo contingent earnout fair value benefited operating income. These items affect comparability; Adjusted EBITDA is a non-GAAP measure.
- MoLo’s 2023 earnout target was not achieved, so no payment was due for that year. The year-end contingent consideration liability was $92.9 million; potential additional payments depend on 2024 and 2025 performance.
Outlook, risks and contingencies
Management described a challenging freight environment, with elevated inflation and interest rates, weak manufacturing indicators and geopolitical disruptions affecting trade routes. It said Asset-Light pricing had stabilized at the bottom of the truckload cycle and was expected to improve in 2024, but provided no specific consolidated earnings or revenue guidance. Management cautioned that market conditions and the benefit from reduced LTL capacity could change.
- Key operating risks include economic and freight-cycle weakness, pricing competition, fuel and equipment costs, labor expense, capacity availability, and the ability to pass cost increases to customers.
- ABF Freight participates in multiemployer pension plans; withdrawal from certain plans could create material liabilities. The current labor agreement specifies contributions through June 2028, but future contribution rates remain uncertain.
- Five lawsuits relate to a multi-fatality 2021 accident involving a MoLo contract carrier, before ArcBest acquired MoLo. The company says a loss is reasonably possible, cannot estimate a loss range, and warns potential amounts could be material.
- A tentative $9.5 million settlement of an employee classification claim is subject to court approval. The company also appealed state sales-and-use-tax assessments; management does not expect that matter to have a material adverse effect.
- ABF Freight paid a $0.5 million civil penalty under an EPA Clean Water Act consent decree and agreed to compliance tasks. The company also faces ongoing environmental remediation matters, which it says are not expected to materially affect results.
- Cybersecurity, insurance claims and self-insurance reserves are significant risk areas. The company reported no known material cybersecurity incident in 2023. Workers’ compensation and third-party casualty reserves were $181.8 million; the auditor identified these reserves as a critical audit matter.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether Asset-Based demand and profitable published LTL pricing remain durable as customer contracts renew and competitors respond.
- Whether Asset-Light revenue per shipment and margins recover, and how results compare with the company’s 2024 improvement expectation.
- The funding and maturity terms of the receivables securitization program due July 2024, alongside planned 2024 capital spending and liquidity needs.
- Potential 2024–2025 MoLo earnout payments and the assumptions underlying the $92.9 million contingent liability.
- Developments in the MoLo accident litigation, the employee classification settlement approval, and the estimates supporting insurance and environmental reserves.