Forward Air(FWRD) - 2019 Q2 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) For H1 2019, revenues increased to $667.2 million, assets grew to $936.6 million primarily due to new lease accounting, while net income slightly decreased Condensed Consolidated Balance Sheets Total assets increased to $936.6 million, driven by $149.5 million in lease assets, with liabilities rising to $426.5 million due to lease obligations Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $936,557 | $760,215 | +$176,342 | | Cash and cash equivalents | $14,777 | $25,657 | -$10,880 | | Operating lease right-of-use assets | $149,544 | $— | +$149,544 | | Goodwill and other acquired intangibles, net | $344,855 | $312,753 | +$32,102 | | Total Liabilities | $386,515 | $206,971 | +$179,544 | | Operating lease obligations (Current & Long-term) | $150,122 | $— | +$150,122 | | Debt and finance lease obligations | $57,508 | $47,644 | +$9,864 | | Total Shareholders' Equity | $550,042 | $553,244 | -$3,202 | Condensed Consolidated Statements of Comprehensive Income Q2 2019 operating revenue grew 4.7% to $345.8 million, but income from operations declined 7.0% to $30.6 million, leading to an 8.2% drop in net income Q2 and YTD Financial Performance (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | % Change | YTD 2019 | YTD 2018 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Revenue | $345,756 | $330,343 | 4.7% | $667,227 | $632,951 | 5.4% | | Income from Operations | $30,550 | $32,870 | -7.0% | $55,284 | $57,105 | -3.2% | | Net Income | $22,330 | $24,298 | -8.2% | $40,737 | $42,038 | -3.1% | | Diluted EPS | $0.78 | $0.82 | -4.9% | $1.41 | $1.42 | -0.7% | | Dividends per share | $0.18 | $0.15 | 20.0% | $0.36 | $0.30 | 20.0% | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $71.8 million, while investing activities used $42.3 million due to acquisitions, and financing used $40.3 million for repurchases and dividends Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71,764 | $66,990 | | Net cash used in investing activities | ($42,326) | ($13,114) | | Acquisition of business, net of cash | ($27,000) | $- | | Net cash used in financing activities | ($40,318) | ($37,667) | | Repurchase of common stock | ($38,617) | ($28,165) | | Net (decrease) increase in cash | ($10,880) | $16,209 | Notes to Condensed Consolidated Financial Statements Key disclosures include the FSA Logistix acquisition, adoption of new lease accounting (ASU 2016-02), a new share repurchase program, and a $5 million vehicular claims reserve - The company operates in four reportable segments: Expedited LTL, Intermodal, Truckload Premium Services (TLS), and Pool Distribution[23] - In April 2019, the company acquired FSA Logistix for $27 million in cash plus a potential earnout of up to $15 million, expanding final mile pickup and delivery operations within the Expedited LTL segment[35] - On January 1, 2019, the company adopted the new lease standard ASU 2016-02, resulting in the recognition of right-of-use lease assets of $149.5 million and lease liabilities of $150.1 million as of June 30, 2019[30][73] - In February 2019, the Board approved a new stock repurchase plan for up to 5 million shares, with 637,000 shares repurchased for $38.6 million during the first six months of 2019[89][91] - During Q2 2019, the company recorded a $5 million reserve for pending vehicular claims[96] - Subsequent to the quarter's end, on July 14, 2019, the company acquired OST Logistics for $12 million to expand its Intermodal segment's footprint on the east coast[107] Management's Discussion and Analysis of Financial Condition and Results of Operations Q2 2019 revenue grew 4.7% driven by acquisitions, but operating income declined 7.0% due to increased expenses, including a $5.0 million vehicular claims reserve and CEO transition costs Results from Operations - Three Months Ended June 30, 2019 Q2 2019 consolidated revenue rose 4.7% to $345.7 million, but operating income fell 7.0% to $30.6 million, impacted by a $4.0 million vehicle claim reserve and CEO transition costs Q2 2019 Segment Performance (in millions) | Segment | Operating Revenue | % Change YoY | Income from Operations | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Expedited LTL | $205.7 | 6.6% | $26.9 | 1.5% | | Intermodal | $50.5 | 2.6% | $5.2 | -7.1% | | Truckload Premium Services | $46.1 | -5.7% | $0.7 | -58.8% | | Pool Distribution | $45.8 | 5.8% | $1.6 | 0.0% | | Total | $345.7 | 4.7% | $30.6 | -7.0% | - Operating expenses increased by $17.7 million, driven by an $8.2 million increase in salaries (partly from acquisitions) and a $3.1 million increase in insurance and claims, which included a $5.0 million reserve for pending vehicular claims[123] - The operating loss from 'Other Operations' increased to $3.8 million, primarily due to a $4.0 million vehicle claim reserve and $0.6 million in costs related to the CEO transition[175] Results from Operations - Six Months Ended June 30, 2019 H1 2019 consolidated revenue grew 5.4% to $667.2 million, but operating income decreased 3.2% to $55.3 million, impacted by a $5.0 million vehicle claim reserve and CEO transition costs YTD 2019 Segment Performance (in millions) | Segment | Operating Revenue | % Change YoY | Income from Operations | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Expedited LTL | $384.3 | 5.9% | $46.5 | -1.7% | | Intermodal | $104.6 | 7.1% | $11.4 | 26.7% | | Truckload Premium Services | $91.8 | -3.4% | $1.5 | -11.8% | | Pool Distribution | $91.0 | 5.8% | $2.8 | -6.7% | | Total | $667.2 | 5.4% | $55.3 | -3.2% | - The operating loss from 'Other Operations' widened to $6.9 million from $3.9 million in the prior year, driven by a $4.0 million vehicle claim reserve, $1.6 million in loss development factors, and $1.3 million in CEO transition costs[235] Liquidity and Capital Resources Cash from operations increased to $71.8 million, while major uses included $27.0 million for acquisitions, $38.6 million for share repurchases, and $10.3 million for dividends - Net cash from operating activities increased to $71.8 million for the first six months of 2019, compared to $67.0 million in 2018[240] - Investing activities used $42.3 million, primarily consisting of $27.0 million for the acquisition of FSA and $15.3 million in net capital expenditures[241] - Financing activities used $40.3 million, which included $38.6 million in share repurchases and $10.3 million in dividend payments, partially offset by $10.0 million in proceeds from the senior credit facility[242] Quantitative and Qualitative Disclosures About Market Risk The company states that its exposure to market risk related to its outstanding debt is not significant and has not materially changed from the disclosures in its 2018 Form 10-K - Exposure to market risk from outstanding debt is not significant and has not changed materially since the 2018 Form 10-K[246] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with changes implemented for the new lease accounting standard (ASU 2016-02) - The CEO and CFO believe the company's disclosure controls and procedures are effective[248] - Changes to internal controls were implemented to meet the reporting and disclosure requirements of the new lease standard, ASU 2016-02[249] Part II. Other Information Legal Proceedings The company is involved in ordinary, routine litigation incidental to its business, primarily related to personal injury, property damage, and workers' compensation claims - The company is party to ordinary, routine litigation which is not expected to have a material adverse effect on its business[250] Risk Factors There have been no changes in the nature of the company's risk factors since the filing of its 2018 Annual Report on Form 10-K - There have been no changes in the nature of risk factors since December 31, 2018[251] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2019, the company repurchased 406,894 shares at an average price of $60.05 under a new 5.0 million share authorization plan Q2 2019 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2019 | 53,284 | $65.73 | | May 2019 | 150,200 | $60.77 | | June 2019 | 203,410 | $58.04 | | Total Q2 | 406,894 | $60.05 | - On February 5, 2019, the Board approved a new share repurchase authorization for up to 5.0 million shares[254] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and certifications by the CEO and CFO