ArcBest(US:ARCB)2024-08-02 18:06PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's H1 2024 financial statements show decreased assets and equity, mixed revenue, improved operating income, and increased cash flow from operations Consolidated Balance Sheets As of June 30, 2024, total assets decreased slightly to $2.41 billion, with liabilities and stockholders' equity also seeing minor reductions Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $767,213 | $884,783 | | Total Assets | $2,408,529 | $2,485,094 | | Total Current Liabilities | $645,850 | $701,563 | | Total Liabilities | $1,177,011 | $1,242,731 | | Total Stockholders' Equity | $1,231,538 | $1,242,363 | Consolidated Statements of Operations Q2 2024 revenues slightly decreased, but operating and net income from continuing operations increased, while H1 2024 saw a larger revenue decline and reduced net income Q2 Financial Performance (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,077,831 | $1,103,464 | -2.3% | | Operating Income | $48,845 | $42,116 | +16.0% | | Net Income (Continuing Ops) | $46,924 | $39,600 | +18.5% | | Diluted EPS (Continuing Ops) | $1.96 | $1.60 | +22.5% | Six-Month Financial Performance (in thousands, except per share data) | Metric | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $2,114,250 | $2,209,558 | -4.3% | | Operating Income | $71,280 | $63,275 | +12.6% | | Net Income (Continuing Ops) | $44,012 | $58,447 | -24.7% | | Diluted EPS (Continuing Ops) | $1.83 | $2.35 | -22.1% | Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $140.2 million in H1 2024, while investing activities shifted to a net use, and financing activities remained a net use Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $140,202 | $103,757 | | Net Cash from Investing Activities | $(87,079) | $30,456 | | Net Cash from Financing Activities | $(99,759) | $(105,299) | | Net (Decrease) Increase in Cash | $(46,636) | $28,914 | Notes to Consolidated Financial Statements Notes detail business segments, accounting policies, the FleetNet sale, a $28.7 million Phantom Auto impairment, a 1.2% effective tax rate, and ongoing legal matters - The company operates through two reportable segments: Asset-Based (ABF Freight), which accounted for ~64% of revenues in H1 2024, and Asset-Light (MoLo, Panther)2223 - The sale of FleetNet America, Inc. on February 28, 2023, for $100.9 million is accounted for as discontinued operations, with its historical results excluded from continuing operations2445 - In Q1 2024, the company recorded a pre-tax, noncash impairment charge of $28.7 million to write off its equity investment in Phantom Auto, which ceased operations43 - The effective tax rate from continuing operations for the six months ended June 30, 2024, was 1.2%, significantly lower than 19.1% in the prior year, primarily due to tax benefits from the vesting of restricted stock units (RSUs)51 - The company is a defendant in a lawsuit related to an auto accident involving a MoLo contract carrier that occurred prior to the acquisition. While the company was released, MoLo remains a defendant, and a loss is considered reasonably possible107 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 2024's 4.3% revenue decline, improved consolidated operating income, segment-specific performance, and future capital expenditure and share repurchase plans Results of Operations H1 2024 consolidated revenues decreased 4.3%, with Asset-Based operating income improving due to strategic shifts, while Asset-Light incurred a significant operating loss Segment Revenue Performance - H1 2024 vs H1 2023 (in thousands) | Segment | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | | Asset-Based | $1,384,192 | $1,419,832 | -2.5% | | Asset-Light | $792,180 | $847,908 | -6.6% | | Total Consolidated | $2,114,250 | $2,209,558 | -4.3% | Segment Operating Income (Loss) - H1 2024 vs H1 2023 (in thousands) | Segment | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Asset-Based | $126,248 | $90,796 | +$35,452 | | Asset-Light | $(24,756) | $(911) | -$23,845 | | Total Consolidated | $71,280 | $63,275 | +$7,005 | - Asset-Based tonnage per day decreased 18.6% in H1 2024, but this was offset by a 19.4% increase in billed revenue per hundredweight, driven by a strategic focus on higher-priced core LTL business125156158 - Asset-Light shipments per day increased 13.1% in H1 2024, but revenue per shipment fell 17.4% due to soft market conditions and changes in business mix128179 - The remeasurement of contingent earnout consideration for the MoLo acquisition decreased consolidated operating results by $11.2 million in H1 2024, compared to a $5.0 million decrease in H1 2023131 Liquidity and Capital Resources The company maintains strong liquidity with $260.5 million in cash, projects $325-$375 million in 2024 capital expenditures, and continues its share repurchase program - Total cash, cash equivalents, and short-term investments stood at $260.5 million as of June 30, 2024, down from $330.1 million at year-end 2023215217 - Estimated net capital expenditures for 2024 are projected to be between $325.0 million and $375.0 million, including $155.0 million for revenue equipment and $130.0 million for real estate and facility upgrades225228 - In H1 2024, the company repurchased 251,668 shares for $31.6 million. As of June 30, 2024, $99.4 million remained available under the share repurchase program220232 - The fair value of the contingent earnout consideration for the MoLo acquisition is estimated at $104.1 million as of June 30, 2024230 Current Economic Conditions The company operates in a challenging economic environment with a contracting manufacturing sector, soft freight market, and potential for Asset-Light segment goodwill impairment - The manufacturing sector, measured by the PMI, has been in contraction for 19 of the last 20 months, contributing to declining freight volumes188 - The soft freight environment has resulted in a year-over-year decline in market pricing for many Asset-Light services191 - Management warns that significant declines in business levels could result in a noncash write-off of a significant portion of the goodwill and intangible assets of the Asset-Light segment191 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on variable-rate debt, partially mitigated by an interest rate swap agreement, with no significant changes since year-end 2023 - The company's main market risk is from interest rate fluctuations on its variable-rate debt, including its revolving credit facility and accounts receivable securitization program260 - An interest rate swap agreement is in place to mitigate a portion of the interest rate risk on the revolving credit facility260 Item 4. Controls and Procedures The company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls over financial reporting during Q2 2024 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024262 - No material changes to internal controls over financial reporting occurred during the most recent fiscal quarter263 PART II. OTHER INFORMATION Item 1. Legal Proceedings Details on the company's legal proceedings, including a MoLo subsidiary lawsuit and a Fair Labor Standards Act settlement, are provided in Note K - Details on legal proceedings are cross-referenced to Note K in Part I, Item 1 of the report265 Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the filing of its 2023 Annual Report on Form 10-K - No material changes to the company's risk factors have occurred since the 2023 Annual Report on Form 10-K was filed266 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 130,987 shares for $16.0 million in Q2 2024, with $99.4 million remaining under the authorized repurchase program Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 2024 | 36,547 | $142.16 | $110,152,000 | | May 2024 | 94,440 | $114.14 | $99,372,000 | | June 2024 | 0 | N/A | $99,372,000 | | Total Q2 | 130,987 | $121.96 | $99,372,000 | - In February 2024, the Board reauthorized the share repurchase program and increased the total amount available to $125.0 million267