FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2024

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Instruments

The following table presents the components of cash and cash equivalents and short-term investments:

	June 30		December 31
	2024		2023
	(in thousands)
Cash and cash equivalents
Cash deposits(1)	$	126,758	$	168,472
Money market funds(2)		88,832		93,754
Total cash and cash equivalents	$	215,590	$	262,226
Short-term investments
Certificates of deposit(1)	$	44,865	$	67,842

(1) Recorded at cost plus accrued interest, which approximates fair value.

(2) Recorded at fair value as determined by quoted market prices (see amounts presented in the table of financial assets and liabilities measured at fair value within this Note).

The Company’s long-term financial instruments are presented in the table of financial assets and liabilities measured at fair value within this Note.

Concentrations of Credit Risk of Financial Instruments

The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by maintaining its cash deposits and short-term investments in accounts and certificates of deposit which are primarily FDIC-insured or in direct obligations of the U.S. government. However, certain cash deposits and certificates of deposit may exceed federally insured limits. At June 30, 2024 and December 31, 2023, cash deposits and short-term investments totaling $44.5 million and $76.3 million, respectively, were not FDIC insured. The Company also holds money market funds, which are invested in U.S. government securities and repurchase agreements collateralized solely by U.S. government securities.

Fair Value Disclosure of Financial Instruments

Fair value disclosures are made in accordance with the following hierarchy of valuation techniques based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable:

● Level 1 — Quoted prices for identical assets and liabilities in active markets.

● Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

● Level 3 — Unobservable inputs (based on the Company’s market assumptions) that are significant to the valuation model.

Fair value and carrying value disclosures of financial instruments are presented in the following table:

	June 30				December 31
	2024				2023
	(in thousands)
		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
Credit Facility(1)	$	50,000	$	50,000	$	50,000	$	50,000
Notes payable(2)		153,587		151,719		178,938		177,149
New England Pension Fund withdrawal liability(3)		19,040		17,381		19,402		18,220
	$	222,627	$	219,100	$	248,340	$	245,369

(1) The revolving credit facility (the “Credit Facility”) carries a variable interest rate based on Secured Overnight Financing Rate (“SOFR”), plus a margin, priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).

(2) Fair value of the notes payable was determined using a present value income approach based on quoted interest rates from lending institutions with which the Company would enter into similar transactions (Level 2 of the fair value hierarchy).

(3) ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018, which resulted in a related withdrawal liability. The fair value of the outstanding withdrawal liability is equal to the present value of the future withdrawal liability payments, discounted at an interest rate of 5.7% and 5.3% at June 30, 2024 and December 31, 2023, respectively, determined using the 20-year U.S. Treasury rate plus a spread (Level 2 of the fair value hierarchy). As of June 30, 2024, the outstanding withdrawal liability totaled $19.0 million, of which $0.7 million was recorded in accrued expenses, and the remaining portion was recorded in other long-term liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the assets and liabilities that are measured at fair value on a recurring basis:

	June 30, 2024
			Fair Value Measurements Using
			Quoted Prices		Significant		Significant
			In Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Money market funds(1)	$	88,832	$	88,832	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2)		4,947		4,947		—		—
Interest rate swap(3)		630		—		630		—
	$	94,409	$	93,779	$	630	$	—
Liabilities:
Contingent consideration(4)	$	104,070	$	—	$	—	$	104,070

	December 31, 2023
			Fair Value Measurements Using
			Quoted Prices		Significant		Significant
			In Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Money market funds(1)	$	93,754	$	93,754	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2)		4,627		4,627		—		—
Interest rate swap(3)		1,710		—		1,710		—
	$	100,091	$	98,381	$	1,710	$	—
Liabilities:
Contingent consideration(4)	$	92,900	$	—	$	—	$	92,900

(1) Included in cash and cash equivalents.

(2) Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Included in other long-term assets, with a corresponding liability reported within other long-term liabilities.

(3) Included in other long-term assets. The fair value of the interest rate swap was determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty, which are generally considered to be in Level 3 of the fair value hierarchy. However, the Company assessed Level 3 inputs as insignificant to the valuation at June 30, 2024 and December 31, 2023 and considers the interest rate swap valuation in Level 2 of the fair value hierarchy.

(4) As part of the Agreement and Plan of Merger (the “Merger Agreement”) of MoLo, certain additional cash consideration is required to be paid by the Company based on the achievement of certain incremental targets of adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for each of the years ended December 31, 2023, 2024, and 2025. The estimated fair value of contingent consideration is determined by assessing Level 3 inputs. The Level 3 assessments utilize a Monte Carlo simulation with inputs including scenarios of estimated revenues and adjusted EBITDA to be achieved for the applicable performance periods, volatility factors applied to the simulations, and the discount rate applied, which was 13.7% and 13.3% as of June 30, 2024 and December 31, 2023, respectively. Changes in the significant unobservable inputs might result in a significantly higher or lower fair value at the reporting date. The increase in fair value of contingent earnout consideration as of June 30, 2024 compared to December 31, 2023 primarily relates to the shorter discount period remaining until the expected payout, partially offset by a higher discount rate at the June 30, 2024 remeasurement date.

The following table provides the change in fair value of the liabilities measured at fair value using inputs categorized in Level 3 of the fair value hierarchy:

	Contingent Consideration
	(in thousands)
Balance at December 31, 2023	$	92,900
Change in fair value included in operating income		11,170
Balance at June 30, 2024	$	104,070

Assets Measured at Fair Value on a Nonrecurring Basis

The Company remeasures certain assets on a nonrecurring basis upon the occurrence of certain events. In November 2021, the Company recorded an equity investment for $25.0 million in Phantom Auto, a startup provider of human-centered remote operation software, and became a lead investor in their Series B Preferred offering. The equity investment was accounted for as a nonmarketable equity security without a readily determinable value using the measurement alternative, which allowed the investment to be recorded at cost, less any impairment and adjusted for observable price changes. During the second quarter of 2023, the fair value of the Company’s investment in Phantom Auto increased by $3.7 million based on an observable price change upon the closing of Phantom Auto’s Series B-2 funding round. During the first quarter of 2024, the Company was notified that Phantom Auto was ceasing operations due to liquidity concerns from failing to secure additional funding from investors or lenders. As a result, the Company assessed the likelihood of recovering its investment as remote and recorded a pre-tax, noncash impairment charge of $28.7 million, to write off the equity investment in Phantom Auto, which was recognized below the operating income line in “Other, net” within “Other income (costs).”

The following table provides the change in fair value of equity investments on a nonrecurring basis using inputs categorized in Level 3 of the fair value hierarchy:

	Equity Investment
	(in thousands)
Balance at December 31, 2023	$	28,739
Change in fair value included in other income		(28,739)
Balance at June 30, 2024	$	—