OPERATING SEGMENT DATA

6 Months Ended

Jun. 30, 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. 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 and during summer months due to plant shutdowns affecting automotive and

manufacturing customers of the Asset-Light segment; however, weather and other disruptive events can result in higher short-term demand for expedite services depending on the impact to customers' supply chains. 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 technology-driven 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, including the three and six months ended June 30, 2023 and 2022.

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 fairly and equitably reflect 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				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022
	(in thousands)
REVENUES
Asset-Based	$	722,015	$	802,622	$	1,419,832	$	1,507,933
Asset-Light		409,816		549,655		847,908		1,144,939
Other and eliminations		(28,367)		(30,585)		(58,182)		(63,089)
Total consolidated revenues	$	1,103,464	$	1,321,692	$	2,209,558	$	2,589,783
OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	344,538	$	328,068	$	680,143	$	641,565
Fuel, supplies, and expenses		90,897		99,296		185,185		184,127
Operating taxes and licenses		14,094		12,823		28,073		25,316
Insurance		12,889		12,197		26,162		22,628
Communications and utilities		4,553		4,648		9,857		9,335
Depreciation and amortization		25,273		24,463		50,184		48,768
Rents and purchased transportation		101,922		121,550		192,666		224,535
Shared services		74,468		75,584		139,081		142,734
(Gain) loss on sale of property and equipment		416		(1,370)		365		(4,065)
Innovative technology costs(1)		8,343		7,954		14,411		14,914
Other		1,297		753		2,909		1,386
Total Asset-Based		678,690		685,966		1,329,036		1,311,243
Asset-Light
Purchased transportation		343,102		448,160		713,265		956,540
Supplies and expenses		3,348		4,263		7,420		7,529
Depreciation and amortization(2)		5,085		5,468		10,153		10,648
Shared services		48,985		57,986		100,414		108,183
Contingent consideration(3)		(10,000)		—		5,040		810
Gain on sale of subsidiary(4)		—		(402)		—		(402)
Other		6,116		6,701		12,527		13,036
Total Asset-Light		396,636		522,176		848,819		1,096,344
Other and eliminations		(13,978)		(22,488)		(31,572)		(46,785)
Total consolidated operating expenses	$	1,061,348	$	1,185,654	$	2,146,283	$	2,360,802

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

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

(3) Represents the change in fair value of the contingent earnout consideration related to the MoLo acquisition (see Note B). The second quarter 2023 decrease in fair value reflects the impact of continuing softer market conditions in 2023 and revised growth assumptions for 2024 and 2025 on the forecasts utilized at the June 30, 2023 remeasurement date. The net increase in fair value for the six months ended June 30, 2023 reflects an increase in fair value based on assumptions for business growth projected at March 31, 2023, partially offset by revised growth assumptions at June 30, 2023, which resulted in a decrease in fair value for the second quarter.

(4) Gain relates to the contingent amount recognized in second quarter 2022 when the funds from the May 2021 sale of the labor services portion of the Asset-Light segment’s moving business were released from escrow.

	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022
	(in thousands)
OPERATING INCOME
Asset-Based	$	43,325	$	116,656	$	90,796	$	196,690
Asset-Light		13,180		27,479		(911)		48,595
Other and eliminations		(14,389)		(8,097)		(26,610)		(16,304)
Total consolidated operating income	$	42,116	$	136,038	$	63,275	$	228,981
OTHER INCOME (COSTS)
Interest and dividend income	$	3,725	$	353	$	6,658	$	452
Interest and other related financing costs		(2,205)		(1,863)		(4,532)		(3,803)
Other, net(1)		5,038		(2,807)		6,818		(3,633)
Total other income (costs)		6,558		(4,317)		8,944		(6,984)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	$	48,674	$	131,721	$	72,219	$	221,997

(1) Includes the components of net periodic benefit cost (credit) other than service cost related to the Company’s SBP and postretirement health benefit plan and proceeds and changes in cash surrender value of life insurance policies. For the three and six months ended June 30, 2023, includes a $3.7 million fair value increase related to the Company’s equity investment in Phantom Auto, based on an observable price change during second quarter 2023 (see Note B).

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

	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022(1)		2023		2022(1)
	(in thousands)
Revenues from customers
Asset-Based	$	694,755	$	774,554	$	1,363,975	$	1,450,072
Asset-Light		407,926		546,270		843,959		1,137,992
Other		783		868		1,624		1,719
Total consolidated revenues	$	1,103,464	$	1,321,692	$	2,209,558	$	2,589,783
Intersegment revenues
Asset-Based	$	27,260	$	28,068	$	55,857	$	57,861
Asset-Light		1,890		3,385		3,949		6,947
Other and eliminations		(29,150)		(31,453)		(59,806)		(64,808)
Total intersegment revenues	$	—	$	—	$	—	$	—
Total segment revenues
Asset-Based	$	722,015	$	802,622	$	1,419,832	$	1,507,933
Asset-Light		409,816		549,655		847,908		1,144,939
Other and eliminations		(28,367)		(30,585)		(58,182)		(63,089)
Total consolidated revenues	$	1,103,464	$	1,321,692	$	2,209,558	$	2,589,783

(1) The 2022 amounts have been adjusted from those previously reported to correct the intersegment breakdown of certain revenues from customers and intersegment revenues between the segments. Adjustments made are not material.

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

	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	449,024	$	442,875	$	886,006	$	857,780
Rents, purchased transportation, and other costs of services		415,712		538,238		845,317		1,116,087
Fuel, supplies, and expenses		124,148		129,505		246,766		239,864
Depreciation and amortization(1)		35,811		34,884		70,821		69,280
Contingent consideration(2)		(10,000)		—		5,040		810
Other		46,653		40,152		92,333		76,981
	$	1,061,348	$	1,185,654	$	2,146,283	$	2,360,802

(1) Includes amortization of intangible assets.

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