OPERATING SEGMENT DATA

3 Months Ended

Mar. 31, 2023

OPERATING SEGMENT DATA

OPERATING SEGMENT DATA

NOTE J – OPERATING SEGMENT DATA

The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. Management uses revenues, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company’s operations.

On February 28, 2023, the Company sold FleetNet, a wholly owned subsidiary and reportable operating segment of the Company. Following the sale, FleetNet is reported as discontinued operations. As such, historical results of FleetNet have been excluded from both continuing operations and segment results for all periods presented, and reclassifications have been made to the prior-period financial statements to conform to the current-year presentation.

The Company’s reportable operating segments are impacted by seasonal fluctuations which affect tonnage and shipment levels and demand for services, as described below; therefore, operating results for the interim periods presented may not necessarily be indicative of the results for the fiscal year. In recent periods, including the three months ended March 31, 2023 and 2022, the Company’s operations have not been as heavily impacted by seasonal fluctuations.

Inclement weather conditions can adversely affect freight shipments and operating costs of the Asset-Based and Asset-Light segments. Shipments may decline during winter months because of post-holiday slowdowns; however, expedite shipments can be subject to short-term increases depending on the impact of weather or other disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers of the Asset-Light segment, but disruptive events can result in higher demand for expedite services. Moving services of the Asset-Light segment are impacted by seasonal fluctuations, generally resulting in higher business levels in the second and third quarters as the demand for moving services is typically stronger in the summer months.

Historically, the second and third calendar quarters of each year usually have the highest tonnage and shipment levels, while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies; available capacity in the market; the impact of yield initiatives; and the impact of adverse external events or conditions, may influence quarterly business levels. The Company’s yield initiatives, along with increased intelligence and visibility with respect to demand, have allowed for shipment optimization in non-peak times, reducing the Company’s susceptibility to seasonal fluctuations in recent years.

The Company’s reportable operating segments are as follows:

● The Asset-Based segment includes the results of operations of ABF Freight System, Inc. and certain other subsidiaries. The segment operations include national, inter-regional, and regional transportation of general commodities through standard, expedited, and guaranteed LTL services. The Asset-Based segment provides services to the Asset-Light segment, including freight transportation related to certain consumer household goods self-move services.

● The Asset-Light segment includes the results of operations of the Company’s service offerings in ground truckload, expedite, dedicated, intermodal, household goods moving, managed transportation, warehousing and distribution, and international freight transportation for air, ocean, and ground. The Asset-Light segment provides services to the Asset-Based segment.

The Company’s other business activities and operations that are not reportable segments include ArcBest Corporation (the parent holding company) and certain subsidiaries. Certain costs incurred by the parent holding company and the Company’s shared services subsidiary are allocated to the reportable segments. The Company eliminates intercompany transactions in consolidation. However, the information used by the Company’s management with respect to its reportable operating segments is before intersegment eliminations of revenues and expenses.

Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, and other company-wide services. Certain overhead costs are not attributable to any segment and remain unallocated in “Other and eliminations.”

Included in unallocated costs are expenses related to investor relations, legal, the Company’s Board of Directors, and certain technology investments. Shared services costs attributable to the reportable operating segments are predominantly allocated based upon estimated and planned resource utilization-related metrics such as estimated shipment levels or number of personnel supported. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the reportable operating segments. Management believes the methods used to allocate expenses are reasonable.

Further classifications of operations or revenues by geographic location are impracticable and, therefore, are not provided. The Company’s foreign operations are not significant.

The following tables reflect the Company’s reportable operating segment information from continuing operations:

	Three Months Ended March 31
	2023		2022
	(in thousands)
REVENUES FROM CONTINUING OPERATIONS
Asset-Based	$	697,817	$	705,311
Asset-Light		438,092		595,284
Other and eliminations		(29,815)		(32,504)
Total consolidated revenues	$	1,106,094	$	1,268,091
OPERATING EXPENSES FROM CONTINUING OPERATIONS
Asset-Based
Salaries, wages, and benefits	$	335,605	$	313,497
Fuel, supplies, and expenses		94,288		84,831
Operating taxes and licenses		13,979		12,493
Insurance		13,273		10,431
Communications and utilities		5,304		4,687
Depreciation and amortization		24,911		24,305
Rents and purchased transportation		90,744		102,985
Shared services		64,613		67,150
Gain on sale of property and equipment		(51)		(2,695)
Innovative technology costs(1)		6,068		6,960
Other		1,612		633
Total Asset-Based		650,346		625,277
Asset-Light
Purchased transportation		370,163		508,380
Supplies and expenses		4,072		3,266
Depreciation and amortization(2)		5,068		5,180
Shared services		51,429		50,197
Contingent consideration(3)		15,040		810
Other		6,411		6,335
Total Asset-Light		452,183		574,168
Other and eliminations		(17,594)		(24,297)
Total consolidated operating expenses	$	1,084,935	$	1,175,148
OPERATING INCOME FROM CONTINUING OPERATIONS
Asset-Based	$	47,471	$	80,034
Asset-Light		(14,091)		21,116
Other and eliminations		(12,221)		(8,207)
Total consolidated operating income	$	21,159	$	92,943
OTHER INCOME (COSTS) FROM CONTINUING OPERATIONS
Interest and dividend income	$	2,933	$	99
Interest and other related financing costs		(2,327)		(1,940)
Other, net(4)		1,780		(826)
Total other income (costs)		2,386		(2,667)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	$	23,545	$	90,276

(1) Represents costs associated with the freight handling pilot test program at ABF Freight.

(2) Depreciation and amortization includes amortization of intangibles associated with acquired businesses.

(3) Represents the increase in fair value of the contingent earnout consideration related to the MoLo acquisition (see Note B).

(4) Includes the components of net periodic benefit cost (credit) other than service cost related to the Company’s SBP and postretirement plans and proceeds and changes in cash surrender value of life insurance policies.

The following table reflects information about revenues from customers and intersegment revenues:

	Three Months Ended March 31
	2023		2022
	(in thousands)
Revenues from customers
Asset-Based	$	669,220	$	675,518
Asset-Light		436,033		591,722
Other		841		851
Total consolidated revenues	$	1,106,094	$	1,268,091
Intersegment revenues
Asset-Based	$	28,597	$	29,793
Asset-Light		2,059		3,562
Other and eliminations		(30,656)		(33,355)
Total intersegment revenues	$	—	$	—
Total segment revenues
Asset-Based	$	697,817	$	705,311
Asset-Light		438,092		595,284
Other and eliminations		(29,815)		(32,504)
Total consolidated revenues	$	1,106,094	$	1,268,091

The following table presents operating expenses by category on a consolidated basis:

	Three Months Ended March 31
	2023		2022
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	436,982	$	414,905
Rents, purchased transportation, and other costs of services		429,605		577,849
Fuel, supplies, and expenses		122,618		110,359
Depreciation and amortization(1)		35,010		34,396
Contingent consideration(2)		15,040		810
Other		45,680		36,829
	$	1,084,935	$	1,175,148

(1) Includes amortization of intangible assets.

(2) Represents the increase in fair value of the contingent earnout consideration related to the MoLo acquisition (see Note B).