ArcBest Announces Second Quarter 2020 Results

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Investor Relations Contact: David Humphrey

Title: Vice President – Investor Relations

Phone: 479-785-6200 

Email: dhumphrey@arcb.com

ArcBest^® Announces Second Quarter 2020 Results

• Second quarter 2020 revenue of $627.4 million, and net income of $15.9 million, or $0.61 per diluted share.  On a non‑GAAP¹ basis, second quarter 2020 net income was $17.6 million, or $0.67 per diluted share.
• COVID-19 pandemic significantly impacted second quarter business levels and financial results
• Asset-Based and Asset-Light cost management partially offset the effects of revenue and business declines

FORT SMITH, Arkansas, July 29, 2020 — ArcBest^® (Nasdaq: ARCB), a leader in supply chain logistics, today reported second quarter 2020 revenue of $627.4 million compared to second quarter 2019 revenue of $771.5 million.  Second quarter 2020 operating income was $20.4 million compared to operating income of $35.2 million in the same period last year.  Net income was $15.9 million, or $0.61 per diluted share, compared to second quarter 2019 net income of $24.4 million, or $0.92 per diluted share.

Excluding certain items in both periods as identified in the attached reconciliation tables, non-GAAP operating income was $25.1 million in second quarter 2020 compared to second quarter 2019 non-GAAP operating income of $38.8 million.  On a non-GAAP basis, net income was $17.6 million, or $0.67 per diluted share, in second quarter 2020 compared to second quarter 2019 net income of $27.4 million, or $1.04 per diluted share.

At June 30, 2020, ArcBest’s consolidated cash and short-term investments, less debt, were $41 million net cash compared to the $3 million net debt position at March 31, 2020, reflecting a $44 million improvement during the second quarter.

“The successes of the second quarter are rooted in the strength of our employees and the culture that we have cultivated here that unites all of us behind a set of shared values that drive excellence” said Judy R. McReynolds, Chairman, President and CEO of ArcBest. “I am incredibly proud of our employees, especially our front-line teams, who continue to work hard and serve our customers in the face of a global pandemic that continues to affect so many aspects of the economy.”

Second Quarter Results of Operations Comparisons

Asset-Based

Second Quarter 2020 Versus Second Quarter 2019

• Revenue of $460.1 million compared to $559.6 million, a per-day decrease of 17.8 percent.
• Total tonnage per day decrease of 13.8 percent, with a double-digit percentage decrease in both LTL-rated tonnage and TL-rated spot shipment tonnage moving in the Asset-Based network.
• Total shipments per day decrease of 13.3 percent.  Total weight per shipment decrease of 0.6 percent and an increase of 0.9 percent in LTL-rated weight per shipment impacted by transactional, LTL-rated shipments added during the second quarter.
• Total billed revenue per hundredweight decreased 4.0 percent and was negatively impacted by lower fuel surcharges versus prior year.  Excluding fuel surcharge, LTL-rated freight experienced a percentage increase in the low-single digits.
• Operating income of $21.0 million and an operating ratio of 95.4 percent compared to the prior year quarter operating income of $36.2 million and an operating ratio of 93.5 percent.  On a non-GAAP basis, operating income of $25.8 million and an operating ratio of 94.4 percent compared to the prior year quarter operating income of $38.9 million and an operating ratio of 93.0 percent.

In response to significantly lower shipment and tonnage levels related to the pandemic’s impact on customer shipping patterns, Asset-Based system labor and other resources were managed down in order to match business levels.  Second quarter business decreases were somewhat mitigated by the continued addition of spot, truckload-rated shipments and transactional LTL-rated shipments throughout the Asset-Based network.  Combined with the cost reductions in place, the handling of these additional transactional shipments contributed to improved operational efficiencies, fewer empty miles and lower costs.  Total second quarter revenue per hundredweight decreased due to freight mix changes related to the addition of these transactional shipments.  However, total yield on LTL-rated shipments, excluding changes in fuel surcharge, was positive versus the prior year.  Pricing on ABF Freight’s traditional published and contractual business improved as the transportation marketplace’s rational pricing environment continued. 

Asset-Light³

Second Quarter 2020 Versus Second Quarter 2019

• Revenue of $197.9 million compared to $232.9 million, a per-day decrease of 15.0 percent.
• Operating income of $2.1 million compared to operating income of $3.1 million.
• Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $4.9 million compared to Adjusted EBITDA of $6.5 million.

Second quarter revenue in the Asset-Light ArcBest segment decreased compared to the prior year period primarily due to lower demand in both the expedite and truckload brokerage businesses related to the pandemic.    Reduced demand for expedited services was related to customer closures in the auto sector for the majority of the quarter and meaningful reductions in business levels for many manufacturing customers.  Revenue reductions in truckload brokerage were the result of fewer total shipments combined with lower average revenue per shipment.  The second quarter was highlighted by significant revenue growth in managed transportation services, consistent with the positive trend seen for the past several quarters in this portion of ArcBest’s Asset-Light business.  Purchased transportation expense in the second quarter, as a percent of revenue, increased 120 basis points compared to the prior year period reflecting changes in business mix and the market effects of reductions in revenue per shipment that exceeded comparable decreases in purchased transportation expense.  In the second quarter of 2020, operating results for the Asset-Light ArcBest segment benefitted from the corporate cost reduction initiatives previously announced in early April.

At FleetNet, a decrease in total events, primarily associated with fewer roadside repairs due to the pandemic, contributed to lower total revenue and reduced operating income compared to the prior year period.

July 2020 Update On Previously Announced Cost Actions

As previously announced, in anticipation of lower business levels and the potential for cash flow disruption, ArcBest implemented actions in late March and early April to mitigate the operating and financial impact of the COVID-19 pandemic.  ArcBest drew down $180 million of its Senior Secured Revolving Credit Facility and borrowed $45 million under its Accounts Receivable Securitization Program.  As described earlier, ArcBest’s net cash position improved $44 million since March 31, 2020, and customer account payment trends have stabilized.  Because of these factors, we are currently reviewing options for paying back the incremental borrowings during third quarter 2020.

Due to the uncertainties at the time, ArcBest implemented cost reductions beginning in April 2020 that included a 15% decrease in the salaries of all nonunion employees; suspension of the employer match of ArcBest’s nonunion 401(k) Plan; a 15% decrease in the fees paid to ArcBest’s board members and the board committee chairpersons as well as other cost reductions.  When compared to second quarter 2019, these compensation-related reductions resulted in savings of approximately $15 million in second quarter 2020.  These cost reductions, along with utilizing real-time, technology-enabling data to align operational costs with business levels, contributed to the positive second quarter financial results.

Since the lowest monthly consolidated revenue levels of the year, which were reported in April, ArcBest has experienced improved financial trends that include sequential business improvement², increased cash levels and improved EBITDA.   Year-over-year consolidated revenue has improved from a decline of 20% in April to a month-to-date July decline of 3%.  The sequential improvement in revenue for each month of the quarter resulted in a greater portion of the second quarter profitability being earned in June.  As a result of this positive momentum in our business, some cost reductions will be restored beginning in the third quarter of 2020.  These include the restoration of nonunion salaries; the 401(k) company match; and the board fees.  On a sequential basis, compared to second quarter 2020, ArcBest anticipates that the third quarter 2020 expense associated with these cost restorations will be in an approximate range of $10 million to $15 million.  Though some operational resources are being added back as business improves, they will continue to be carefully managed to available business.  “As an essential business, our employees have worked on the front lines in sacrifice, both personally and financially, to serve our customers and our nation,” said McReynolds.  “We value our employees and appreciate their efforts, and are pleased to now be able to restore full wage levels.”  

 

Closing Comments

“I am pleased with what we have been able to accomplish over the last three months considering the dynamic nature of circumstances surrounding the COVID-19 pandemic,” said McReynolds. “Our entire team, from our best-in-class drivers and dock workers in the field to our office personnel working from home around the country, has executed very well in this environment and their fortitude, when mixed with prudent business decisions, has proven to be a winning combination for success during these times. We are working to carry this momentum forward as the second half of the year unfolds and will, as always, monitor trends and make adjustments where necessary. As a full-service logistics company, ArcBest is playing a vital role in getting our nation up and running again, and we plan to lead the way by continuing to deliver quality integrated solutions for all of our customers’ supply chain needs.”

 

NOTES

1. U.S. Generally Accepted Accounting Principles
2. Discussions of July 2020 business results and certain projections for 2020 are included in Exhibit 99.2 to ArcBest’s second quarter 2020 earnings release filed with the SEC in our Current Report on Form 8‑K.
3. The ArcBest and FleetNet reportable segments, combined, represent Asset-Light operations

 

Conference Call

ArcBest will host a conference call with company executives to discuss the 2020 second quarter results. The call will be today, Wednesday, July 29, at 9:00 a.m. ET (8:00 a.m. CT). Interested parties are invited to listen by calling (800) 681-2231. Following the call, a recorded playback will be available through the end of the day on September 15, 2020. To listen to the playback, dial (800) 633‑8284 or (402) 977‑9140 (for international callers). The conference call ID for the playback is 21965466. The conference call and playback can also be accessed, through September 15, 2020, on ArcBest’s website at arcb.com.

About ArcBest

ArcBest^® (Nasdaq: ARCB) is a leading logistics company with creative problem solvers who deliver innovative solutions for our customers’ supply chain needs.  We'll find a way to deliver knowledge, expertise and a can-do attitude with every shipment and supply chain solution, household move or vehicle repair.  At ArcBest, we’re More Than Logistics^®. For more information, visit arcb.com.

 

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995:  Certain statements and information in this press release concerning results for the three months ended June 30, 2020 may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “foresee,” “intend,” “may,” “plan,” “predict,” “project,” “scheduled,” “should,” “would,” and similar expressions and the negatives of such terms are intended to identify forward-looking statements. These statements are based on management’s beliefs, assumptions, and expectations based on currently available information, are not guarantees of future performance, and involve certain risks and uncertainties (some of which are beyond our control). Although we believe that the expectations reflected in these forward-looking statements are reasonable as and when made, we cannot provide assurance that our expectations will prove to be correct. Actual outcomes and results could materially differ from what is expressed, implied, or forecasted in these statements due to a number of factors, including, but not limited to: a failure of our information systems, including disruptions or failures of services essential to our operations or upon which our information technology platforms rely, data breach, and/or cybersecurity incidents; the ability to maintain third-party information technology systems or licenses; widespread outbreak of an illness or any other communicable disease and the effects of pandemics, including the COVID-19 pandemic, or any other public health crisis; regulatory measures that may be implemented in response to widespread illness, including the COVID-19 pandemic; ineffectiveness of our business continuity plans to meet our operational needs in the event of adverse external events or conditions; untimely or ineffective development and implementation of, or failure to realize potential benefits associated with, new or enhanced technology or processes, including the pilot test program at ABF Freight, and any write-offs associated therewith; the loss or reduction of business from large customers; competitive initiatives and pricing pressures; general economic conditions and related shifts in market demand, including the impact of and uncertainties related to the COVID-19 pandemic, that impact the performance and needs of industries we serve and/or limit our customers’ access to adequate financial resources; the ability to manage our cost structure, and the timing and performance of growth initiatives; relationships with employees, including unions, and our ability to attract, retain, and develop employees; unfavorable terms of, or the inability to reach agreement on, future collective bargaining agreements or a workforce stoppage by our employees covered under ABF Freight’s collective bargaining agreement; our ability to secure independent owner operators and/or operational or regulatory issues related to our use of their services; availability and cost of reliable third-party services; availability of fuel, the effect of volatility in fuel prices and the associated changes in fuel surcharges on securing increases in base freight rates, and the inability to collect fuel surcharges; governmental regulations; environmental laws and regulations, including emissions-control regulations; union employee wages and benefits, including changes in required contributions to multiemployer plans; litigation or claims asserted against us; the loss of key employees or the inability to execute succession planning strategies; maintaining our intellectual property rights, brand, and corporate reputation; default on covenants of financing arrangements and the availability and terms of future financing arrangements; timing and amount of capital expenditures; self-insurance claims and insurance premium costs; increased prices for and decreased availability of new revenue equipment, decreases in value of used revenue equipment, and higher costs of equipment-related operating expenses such as maintenance, fuel, and related taxes; potential impairment of goodwill and intangible assets; the cost, integration, and performance of any recent or future acquisitions; seasonal fluctuations and adverse weather conditions; regulatory, economic, and other risks arising from our international business; acts of terrorism or war, or the impact of antiterrorism and safety measures; and other financial, operational, and legal risks and uncertainties detailed from time to time in ArcBest’s public filings with the Securities and Exchange Commission (“SEC”).

 

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.

 

Financial Data and Operating Statistics

The following tables show financial data and operating statistics on ArcBest^® and its reportable segments.

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three Months Ended						Six Months Ended
		June 30						June 30
		2020			2019			2020			2019
		(Unaudited)
		($ thousands, except share and per share data)
REVENUES		$	627,370		$	771,490		$	1,328,769		$	1,483,329
OPERATING EXPENSES			606,945			736,290			1,300,525			1,439,538
OPERATING INCOME			20,425			35,200			28,244			43,791
OTHER INCOME (COSTS)
Interest and dividend income			991			1,616			2,366			3,094
Interest and other related financing costs			(3,378)			(2,811)			(6,325)			(5,693)
Other, net			2,696			(445)			(1,166)			(1,036)
			309			(1,640)			(5,125)			(3,635)
INCOME BEFORE INCOME TAXES			20,734			33,560			23,119			40,156
INCOME TAX PROVISION			4,854			9,184			5,337			10,892
NET INCOME		$	15,880		$	24,376		$	17,782		$	29,264
EARNINGS PER COMMON SHARE(1)
Basic		$	0.62		$	0.95		$	0.70		$	1.14
Diluted		$	0.61		$	0.92		$	0.68		$	1.10
AVERAGE COMMON SHARES OUTSTANDING
Basic			25,463,559			25,554,286			25,468,624			25,562,306
Diluted			26,217,957			26,431,592			26,252,486			26,483,011
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.08		$	0.08		$	0.16		$	0.16

1. ArcBest uses the two-class method for calculating earnings per share. This method requires an allocation of dividends paid and a portion of undistributed net income (but not losses) to unvested restricted stock for calculating per share amounts.

 

 

 

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		June 30			December 31
		2020			2019
		(Unaudited)			Note
		($ thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	406,290		$	201,909
Short-term investments			167,719			116,579
Accounts receivable, less allowances (2020 - $7,130; 2019 - $5,448)			273,135			282,579
Other accounts receivable, less allowances (2020 - $661; 2019 - $476)			16,812			18,774
Prepaid expenses			28,928			30,377
Prepaid and refundable income taxes			4,236			9,439
Other			4,923			4,745
TOTAL CURRENT ASSETS			902,043			664,402
PROPERTY, PLANT AND EQUIPMENT
Land and structures			344,951			342,122
Revenue equipment			891,029			896,020
Service, office, and other equipment			232,058			233,354
Software			155,411			151,068
Leasehold improvements			11,821			10,383
			1,635,270			1,632,947
Less allowances for depreciation and amortization			974,464			949,355
			660,806			683,592
GOODWILL			88,320			88,320
INTANGIBLE ASSETS, NET			56,915			58,832
OPERATING RIGHT-OF-USE ASSETS			81,069			68,470
DEFERRED INCOME TAXES			7,507			7,725
OTHER LONG-TERM ASSETS			74,100			79,866
		$	1,870,760		$	1,651,207
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	140,632		$	134,374
Income taxes payable			3,181			12
Accrued expenses			217,020			232,321
Current portion of long-term debt			59,050			57,305
Current portion of operating lease liabilities			19,769			20,265
TOTAL CURRENT LIABILITIES			439,652			444,277
LONG-TERM DEBT, less current portion			473,850			266,214
OPERATING LEASE LIABILITIES, less current portion			65,249			52,277
POSTRETIREMENT LIABILITIES, less current portion			20,448			20,294
OTHER LONG-TERM LIABILITIES			36,077			38,892
DEFERRED INCOME TAXES			60,393			66,210
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, authorized 70,000,000 shares;       issued 2020: 28,958,258 shares; 2019: 28,810,902 shares			290			288
Additional paid-in capital			337,942			333,943
Retained earnings			546,689			533,187
Treasury stock, at cost, 2020: 3,554,639 shares; 2019: 3,404,639 shares			(107,740)			(104,578)
Accumulated other comprehensive income (loss)			(2,090)			203
TOTAL STOCKHOLDERS’ EQUITY			775,091			763,043
		$	1,870,760		$	1,651,207

 

Note:  The balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Six Months Ended
		June 30
		2020			2019
		Unaudited
		($ thousands)
OPERATING ACTIVITIES
Net income		$	17,782		$	29,264
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			56,140			51,722
Amortization of intangibles			1,959			2,249
Pension settlement expense			89			1,634
Share-based compensation expense			5,071			4,859
Provision for losses on accounts receivable			999			621
Change in deferred income taxes			(5,170)			5,124
Gain on sale of property and equipment and lease termination			(3,581)			(1,469)
Changes in operating assets and liabilities:
Receivables			9,626			1,781
Prepaid expenses			1,444			(3,323)
Other assets			4,358			(2,798)
Income taxes			8,413			(3,042)
Operating right-of-use assets and lease liabilities, net			(230)			159
Accounts payable, accrued expenses, and other liabilities			(14,833)			(6,310)
NET CASH PROVIDED BY OPERATING ACTIVITIES			82,067			80,471
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net of financings			(16,209)			(41,909)
Proceeds from sale of property and equipment			7,670			3,798
Purchases of short-term investments			(97,493)			(43,327)
Proceeds from sale of short-term investments			46,725			33,332
Capitalization of internally developed software			(6,495)			(5,535)
NET CASH USED IN INVESTING ACTIVITIES			(65,802)			(53,641)
FINANCING ACTIVITIES
Borrowings under credit facilities			180,000			—
Borrowings under accounts receivable securitization program			45,000			—
Proceeds from notes payable			—			9,552
Payments on long-term debt			(29,185)			(29,984)
Net change in book overdrafts			615			(4,398)
Payment of common stock dividends			(4,082)			(4,102)
Purchases of treasury stock			(3,162)			(5,171)
Payments for tax withheld on share-based compensation			(1,070)			(1,182)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			188,116			(35,285)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			204,381			(8,455)
Cash and cash equivalents at beginning of period			201,909			190,186
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	406,290		$	181,731
NONCASH INVESTING ACTIVITIES
Equipment financed		$	13,566		$	10,964
Accruals for equipment received		$	857		$	19,402
Lease liabilities arising from obtaining right-of-use assets		$	23,727		$	23,049

 

 

 

 

 

 

 

 

 

		Three Months Ended								Six Months Ended
		June 30								June 30
		2020			2019			% Change		2020			2019			% Change
		(Unaudited)
Asset-Based
Workdays			63.5			63.5					127.5			126.5
Billed Revenue(1) / CWT		$	33.69		$	35.11		(4.0%)		$	33.41		$	34.90		(4.3%)
Billed Revenue(1) / Shipment		$	423.39		$	443.94		(4.6%)		$	425.73		$	431.40		(1.3%)
Shipments			1,103,106			1,272,317		(13.3%)			2,306,522			2,483,104		(7.1%)
Shipments / Day			17,372			20,036		(13.3%)			18,090			19,629		(7.8%)
Tonnage (Tons)			693,192			804,487		(13.8%)			1,469,660			1,534,897		(4.3%)
Tons / Day			10,916			12,669		(13.8%)			11,527			12,134		(5.0%)
Pounds / Shipment			1,257			1,265		(0.6%)			1,274			1,236		3.1%
Average Length of Haul (Miles)			1,084			1,040		4.2%			1,062			1,032		2.9%

1. Revenue for undelivered freight is deferred for financial statement purposes in accordance with the Asset-Based segment revenue recognition policy. Billed revenue used for calculating revenue per hundredweight measurements has not been adjusted for the portion of revenue deferred for financial statement purposes.
    
    

		Year Over Year % Change
		Three Months Ended			Six Months Ended
		June 30, 2020			June 30, 2020
		(Unaudited)
ArcBest(2)
Revenue / Shipment			(2.1%)			(2.6%)
Shipments / Day			(23.4%)			(16.8%)

1. Statistical data related to managed transportation solutions transactions are not included in the presentation of operating statistics for the ArcBest segment.
    
    
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