ArcBest(ARCB) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited financial statements show results for the three and six months ended June 30, 2020 Consolidated Financial Statements Core financial statements reflect lower revenue and net income alongside higher cash and debt due to the pandemic Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $627,370 | $771,490 | $1,328,769 | $1,483,329 | | Operating Income | $20,425 | $35,200 | $28,244 | $43,791 | | Net Income | $15,880 | $24,376 | $17,782 | $29,264 | | Diluted EPS | $0.61 | $0.92 | $0.68 | $1.10 | Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $406,290 | $201,909 | | Total Current Assets | $902,043 | $664,402 | | Total Assets | $1,870,760 | $1,651,207 | | Long-Term Debt, less current portion | $473,850 | $266,214 | | Total Stockholders' Equity | $775,091 | $763,043 | - For the six months ended June 30, 2020, net cash provided by operating activities was $82.1 million, slightly higher than the $80.5 million in the same period of 2019, while net cash from financing activities was a significant source of $188.1 million[13] Notes to Consolidated Financial Statements Notes detail segment performance, accounting changes, and confirm no goodwill impairment was recorded - The company operates through three reportable segments: Asset-Based (ABF Freight), ArcBest (asset-light logistics), and FleetNet, with the Asset-Based segment accounting for approximately 70% of total revenues for the first half of 2020[14][15] - On January 1, 2020, the company adopted the new CECL accounting standard (ASC Topic 326) for credit losses, which resulted in a $0.2 million decrease to retained earnings[19][22] - Despite the impact of COVID-19, management concluded it was more likely than not that goodwill ($88.3 million) and indefinite-lived intangible assets were not impaired as of June 30, 2020[38][40] Long-Term Debt Obligations (in thousands) | Debt Component | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Credit Facility | $250,000 | $70,000 | | Accounts receivable securitization borrowings | $85,000 | $40,000 | | Notes payable | $197,888 | $213,504 | | Total Long-Term Debt | $532,900 | $323,519 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the pandemic's impact on financial results, liquidity, and segment performance - The COVID-19 pandemic significantly impacted the business, causing an 18.7% decline in consolidated revenues for Q2 2020 compared to Q2 2019[113] - In response to the pandemic, the company drew down $180 million from its credit facility and borrowed $45 million from its securitization program to preserve financial flexibility, and implemented cost reductions that saved approximately $15 million in Q2 2020[121][123][125] - Business levels showed sequential improvement through July 2020, leading the company to repay the $45 million securitization borrowing and plan for repayment of the $180 million credit facility drawdown[118][126] - The company lowered its planned 2020 capital expenditures by 30% to a range of $95 million to $100 million[122] Results of Operations Segment analysis reveals revenue declines and margin compression across all business units Segment Revenue Performance (in thousands) | Segment | Q2 2020 Revenue | Q2 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Asset-Based | $460,070 | $559,648 | (17.8%) | | ArcBest | $151,467 | $181,173 | (16.4%) | | FleetNet | $46,440 | $51,722 | (10.2%) | Segment Operating Income (Loss) Performance (in thousands) | Segment | Q2 2020 Operating Income | Q2 2019 Operating Income | % Change | | :--- | :--- | :--- | :--- | | Asset-Based | $21,036 | $36,178 | (41.8%) | | ArcBest | $1,303 | $2,122 | (38.6%) | | FleetNet | $782 | $1,026 | (23.8%) | - Asset-Based tonnage per day decreased 13.8% and billed revenue per hundredweight fell 4.0% in Q2 2020 YoY, reflecting reduced demand and changes in freight mix[136][160] - ArcBest segment's shipments per day fell 23.4% in Q2 2020 YoY, and purchased transportation costs as a percentage of revenue increased from 81.4% to 82.6%, indicating margin pressure[191][192] Liquidity and Capital Resources Liquidity was enhanced through precautionary borrowings while capex was reduced and dividends continued - Cash, cash equivalents, and short-term investments increased by $255.5 million from year-end 2019, primarily due to $225.0 million in borrowings[217] - Net cash from operating activities for the first six months of 2020 was $82.1 million, comparable to the prior-year period despite lower net income[218] - The 2020 capital expenditure plan was reduced by approximately 30% to an estimated range of $95 million to $100 million[227] - The company declared a quarterly dividend of $0.08 per share and had $10.0 million remaining under its stock repurchase program[230][231] Quantitative and Qualitative Disclosures About Market Risk The primary market risk is interest rate exposure from variable-rate debt, partially hedged by a swap - The company is subject to interest rate risk from variable interest rates on its credit facility and accounts receivable securitization program[253] - In March 2020, the company drew down $180 million from its credit facility and borrowed an additional $45 million from its securitization program as a proactive measure[253] - The company extended the term of its $50.0 million notional amount interest rate swap agreement to October 2024 to convert a portion of its variable-rate debt to a fixed rate[255] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[258] - There were no changes in the company's internal controls over financial reporting during the second quarter of 2020 that have materially affected or are likely to materially affect them[259] PART II. OTHER INFORMATION Legal Proceedings Routine legal actions are not expected to have a material adverse effect on the company - The company is involved in various legal actions that arise in the ordinary course of business and maintains liability insurance and reserves for these exposures[104][261] - Management does not expect routine legal matters to have a material adverse effect on the company's financial condition, results of operations, or cash flows[104][261] Risk Factors New risk factors related to the COVID-19 pandemic and other public health crises were added - A new risk factor was added to address the potential adverse effects of pandemics, like COVID-19, on the company's business, financial condition, and cash flows[262][263] - A second new risk factor was added, stating that external events could adversely affect the company and that business continuity plans may not provide adequate protection[265][266] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased during the quarter, with $10.0 million remaining under the program - The company made no share repurchases during the three months ended June 30, 2020[268] - As of June 30, 2020, $10.0 million remained available for common stock repurchases under the company's program[268] Other Disclosures (Items 3-6) No defaults or other material events were reported, and required exhibits were filed - The company reported no defaults upon senior securities and that mine safety disclosures were not applicable[269] - A list of exhibits filed with the report is provided, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act[271][272]