ArcBest® Announces Second Quarter 2020 Results

FORT SMITH, Ark., July 29, 2020 /PRNewswire/ -- 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."

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.

Investor Relations Contact: David Humphrey
Title: Vice President – Investor Relations
Phone: 479-785-6200
Email: [email protected]

ARCBEST CORPORATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles ("GAAP"). However, management believes that certain non-GAAP performance measures and ratios utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. The use of certain non-GAAP measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Other companies may calculate non-GAAP measures differently; therefore, our calculation may not be comparable to similarly titled measures of other companies. Certain information discussed in the scheduled conference call could be considered non-GAAP measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. These financial measures should not be construed as better measurements than operating income, operating cash flow, net income or earnings per share, as determined under GAAP.

Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA)
Management uses Adjusted EBITDA as a key measure of performance and for business planning. The measure is particularly meaningful for analysis of operating performance, because it excludes amortization of acquired intangibles and software of the Asset-Light businesses, which are significant expenses resulting from strategic decisions rather than core daily operations. Additionally, Adjusted EBITDA is a primary component of the financial covenants contained in our credit agreement.

SOURCE ArcBest

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