Forward Air(FWRD) - 2019 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) Unaudited Q3 2019 financial statements show total assets at $980.6 million, operating revenue at $1.03 billion, and net income at $62.9 million, reflecting growth and new accounting impacts Condensed Consolidated Balance Sheets (Unaudited) | | September 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Total current assets | $215,711 | $201,082 | | Total property and equipment, net | $220,843 | $209,895 | | Operating lease right-of-use assets | $158,977 | — | | Total goodwill and other acquired intangibles, net | $350,461 | $312,753 | | Total assets | $980,633 | $760,215 | | Liabilities and Shareholders' Equity | | | | Total current liabilities | $139,775 | $74,723 | | Debt and finance lease obligations, less current portion | $72,738 | $47,335 | | Operating lease obligations, less current portion | $112,553 | — | | Total shareholders' equity | $561,145 | $553,244 | | Total liabilities and shareholders' equity | $980,633 | $760,215 | Condensed Consolidated Statements of Comprehensive Income (Unaudited, in millions) | | Three months ended Sep 30, 2019 | Three months ended Sep 30, 2018 | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Operating revenue | $361,663 | $331,375 | $1,028,891 | $964,325 | | Income from operations | $30,689 | $29,879 | $85,973 | $86,984 | | Net income | $22,195 | $22,329 | $62,932 | $64,366 | | Diluted EPS | $0.78 | $0.76 | $2.19 | $2.18 | Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $117,731 | $113,845 | | Net cash used in investing activities | ($64,001) | ($32,448) | | Net cash used in financing activities | ($44,563) | ($56,379) | | Net increase in cash | $9,167 | $25,018 | | Cash at end of period | $34,824 | $28,911 | Notes to Condensed Consolidated Financial Statements Notes detail four segments, the adoption of new lease accounting standards, two strategic acquisitions, a change in depreciation estimates, and ongoing share repurchases - The company operates in four reportable segments: Expedited LTL, Intermodal, Truckload Premium Services (TLS), and Pool Distribution[22] - Adopted new lease standard ASU 2016-02 on January 1, 2019, recording right-of-use lease assets of $158,977 thousand and lease liabilities of $159,690 thousand as of September 30, 2019[29][76] - In April 2019, acquired FSA Logistix for $27.0 million plus a potential earnout to expand final mile operations in the Expedited LTL segment[34][38] - In July 2019, acquired O.S.T. Logistics for $12.0 million to expand the Intermodal segment's East Coast footprint[34][38] - A study on asset useful lives led to extending the average life of trailers from 7 to 10 years and tractors from 5 to 10 years, effective July 1, 2019, which reduced depreciation by $1.0 million for the three and nine months ended September 30, 2019[50] - On February 5, 2019, a new stock repurchase plan was approved authorizing up to 5 million shares, with 789,000 shares repurchased for $47.9 million in the first nine months of 2019[98][100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q3 2019 revenue growth to $361.7 million, driven by acquisitions, alongside increased operating expenses and a slight decline in nine-month operating income Results from Operations - Three Months Ended September 30, 2019 Q3 2019 operating revenue increased 9.1% to $361.7 million, driven by acquisitions, while expenses rose 9.8%, resulting in a modest 2.7% increase in operating income Consolidated Results - Three Months Ended September 30 (in millions) | (in millions) | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue | $361.7 | $331.4 | 9.1% | | Total operating expenses | $331.0 | $301.5 | 9.8% | | Income from operations | $30.7 | $29.9 | 2.7% | | Net income | $22.2 | $22.3 | (0.4)% | - Revenue growth was driven by the Expedited LTL segment, which increased by $21.6 million, mainly from the final mile revenue of the acquired FSA business[133] - Operating expenses increased by $29.5 million, with salaries, wages, and benefits rising by $11.3 million and purchased transportation by $8.1 million[134] Segment Analysis - Three Months Ended September 30, 2019 Q3 2019 segment analysis shows Expedited LTL and Pool Distribution growth, Intermodal margin pressure, and a significant decline in Truckload Premium Services operating income Segment Income from Operations - Q3 2019 vs Q3 2018 (in millions) | Segment | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Expedited LTL | $25.9 | $23.7 | 9.3% | | Intermodal | $6.9 | $7.3 | (5.5)% | | Truckload Premium Services | $0.6 | $1.7 | (64.7)% | | Pool Distribution | $1.9 | $0.7 | 171.4% | - Expedited LTL's revenue increase was primarily due to a $21.7 million rise in final mile revenue from the FSA acquisition, though tonnage from traditional linehaul decreased by 3.6%[144] - Intermodal's operating income margin deteriorated from 14.5% to 11.8% due to losing leverage on fixed costs and a decrease in high-margin storage revenue[163] - TLS revenue per mile decreased by 6.8% due to rate pressures from both spot and contract markets, leading to a significant drop in operating income[166][167] Results from Operations - Nine Months Ended September 30, 2019 Nine-month 2019 consolidated revenue grew 6.7% to $1.03 billion, but operating expenses increased faster, leading to a 1.1% decline in operating income to $86.0 million Consolidated Results - Nine Months Ended September 30 (in millions) | (in millions) | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue | $1,028.9 | $964.3 | 6.7% | | Total operating expenses | $942.9 | $877.3 | 7.5% | | Income from operations | $86.0 | $87.0 | (1.1)% | | Net income | $62.9 | $64.4 | (2.3)% | - Revenue growth was led by a $43.0 million increase in the Expedited LTL segment, mainly from the FSA acquisition[191] - Operating income decreased by $1.0 million, driven by increased insurance reserves and a decline in the TLS segment, which offset gains in other segments[194] Segment Analysis - Nine Months Ended September 30, 2019 Nine-month segment analysis shows Expedited LTL and Intermodal growth, continued decline in Truckload Premium Services, and increased losses in Other Operations due to higher reserves Segment Income from Operations - Nine Months Ended Sep 30 (in millions) | Segment | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Expedited LTL | $72.4 | $71.0 | 2.0% | | Intermodal | $18.3 | $16.3 | 12.3% | | Truckload Premium Services | $2.1 | $3.4 | (38.2)% | | Pool Distribution | $4.7 | $3.7 | 27.0% | | Other operations | ($11.5) | ($7.4) | 55.4% | - Expedited LTL's operating margin compressed from 12.9% to 12.2% due to lower linehaul tonnage and costs associated with the FSA acquisition and integration[209] - Intermodal's operating income increased due to revenue rate increases and contributions from the Southwest and MMT acquisitions[221] - The operating loss in 'Other Operations' widened significantly to $11.5 million, primarily due to $6.5 million in vehicular reserves for unfavorable claim development and $2.9 million in CEO transition costs[249] Liquidity and Capital Resources Liquidity analysis shows $117.7 million cash from operations, increased investing activities due to acquisitions, and reduced financing outflows, with $68.5 million available credit capacity - Net cash from operating activities increased by $3.9 million YoY to $117.7 million for the first nine months of 2019[254] - Investing activities included $39.0 million for the acquisitions of FSA and OST, and $25.0 million in net capital expenditures[255] - Financing activities included $20.0 million in proceeds from the senior credit facility, $47.9 million in share repurchases, and $15.4 million in dividend payments[15][257] - As of September 30, 2019, the company had $67.5 million in borrowings outstanding under its revolving credit facility and $68.5 million of available capacity[67] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no significant or material changes in market risk exposure related to outstanding debt since 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[262] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2019, with internal control changes implemented for the new lease accounting standard - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[263] - Changes to internal controls were implemented to meet the reporting and disclosure requirements of the new lease accounting standard, ASU 2016-02[264] Part II. Other Information Item 1. Legal Proceedings The company is involved in routine litigation incidental to its business, with no expected material adverse effect on financial condition or operations - The company is party to routine litigation incidental to its business, which is not expected to have a material adverse effect[265] Item 1A. Risk Factors No material changes in the nature of risk factors have occurred since the 2018 Annual Report on Form 10-K - There have been no changes in the nature of risk factors since the 2018 Annual Report on Form 10-K[266] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased 152,250 shares at an average price of $61.01, with 4,278,556 shares remaining under the current authorization Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 54,918 | $59.54 | | August 2019 | 51,332 | $60.56 | | September 2019 | 46,000 | $63.28 | | Total | 152,250 | $61.01 | - As of September 30, 2019, 4,278,556 shares were available for repurchase under the plan authorized in February 2019[268][269] Item 6. Exhibits This section lists filed exhibits, including corporate documents, CEO/CFO certifications, and Interactive Data Files (XBRL) - Lists filed exhibits, including CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files[275]