Forward Air(FWRD) - 2020 Q1 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) Unaudited statements show a 6.5% revenue increase but a 54.3% net income drop due to COVID-19 impacts Condensed Consolidated Balance Sheets Total assets grew to $1.07 billion, driven by acquisitions, while shareholders' equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $241,189 | $236,318 | | Total assets | $1,066,236 | $990,878 | | Total current liabilities | $143,328 | $137,164 | | Total liabilities | $500,395 | $413,696 | | Total shareholders' equity | $565,841 | $577,182 | Condensed Consolidated Statements of Comprehensive Income Q1 2020 revenue grew to $342.5 million, but net income fell sharply to $8.4 million year-over-year Q1 2020 vs Q1 2019 Income Statement (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Operating revenue | $342,509 | $321,471 | | Income from operations | $11,702 | $24,734 | | Net income | $8,375 | $18,407 | | Diluted EPS | $0.30 | $0.64 | | Dividends per share | $0.18 | $0.18 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased while investing cash use surged due to a major business acquisition Q1 2020 vs Q1 2019 Cash Flows (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,166 | $41,526 | | Net cash used in investing activities | ($58,353) | ($3,689) | | Net cash provided by (used in) financing activities | $41,683 | ($21,329) | | Net increase in cash | $12,496 | $16,508 | Notes to Condensed Consolidated Financial Statements Notes detail the impact of COVID-19, a key acquisition, and the subsequent decision to divest a business segment - The company operates in three principal reportable segments: Expedited Freight, Intermodal, and Pool Distribution[19] - In January 2020, the company acquired Linn Star for $57.2 million to expand its Final Mile capabilities within the Expedited Freight segment[33] - On April 23, 2020, the Board of Directors approved a strategy to divest the Pool Distribution business, which will be reported as a Discontinued Operation starting in Q2 2020[113] - On April 16, 2020, the company amended its credit facility, increasing the revolving credit line from $150 million to $225 million[109][110] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the pandemic's negative impact, which drove an operating income decline despite revenue growth - The COVID-19 pandemic presented a 'meaningful challenge' due to exposure to air freight, ocean freight, and physical retail, with much freight not classified as 'essential goods'[121][122] - In response to a significant revenue reduction in the Pool Distribution segment, the company furloughed roughly 90% of the segment's workforce in April 2020[127] - The company improved its financial flexibility by fully drawing down its $150 million revolving credit facility and executing a $75 million amendment to increase the line[129] - The company projects a downturn in Q2 2020 with a slow sequential recovery and a consolidated Q2 operating loss, but anticipates profitability on a continuing operations basis[128] Results from Operations Consolidated revenue increased 6.5% due to acquisitions, but operating income fell 52.6% from COVID-19 impacts Consolidated Results from Operations (in millions) | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue | $342.5 | $321.5 | 6.5% | | Income from operations | $11.7 | $24.7 | (52.6)% | | Net income | $8.4 | $18.4 | (54.3)% | Operating Income by Segment (in millions) | Segment | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Expedited Freight | $14.7 | $20.4 | (27.9)% | | Intermodal | $3.7 | $6.2 | (40.3)% | | Pool Distribution | ($3.6) | $1.3 | (376.9)% | Expedited Freight Segment Analysis Segment revenue grew 12.6% from acquisitions, but operating income fell 27.9% due to lower core network volume Expedited Freight Revenue Breakdown (in millions) | Revenue Stream | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Network | $152.0 | $161.4 | (5.8)% | | Truckload | $45.1 | $45.0 | 0.2% | | Final Mile | $47.8 | $9.8 | 387.8% | | Total Operating Revenue | $251.2 | $223.0 | 12.6% | - Network tonnage per day decreased by 6.0% year-over-year, with the decline accelerating in March 2020 to 11.3% due to the impact of COVID-19[152][154] Intermodal Segment Analysis Intermodal revenue decreased 3.1% and operating income fell 40.3% due to lower storage revenue and volumes - Drayage shipments increased 9.1% to 82,474, but this was tempered by a 7.9% decline in March 2020 compared to March 2019 due to COVID-19[166][167] - The decrease in operating revenue was primarily attributable to a $2.8 million decrease in storage revenue[167] Pool Distribution Segment Analysis The segment was severely impacted by COVID-19, with revenue falling 12.8% and swinging to a $3.6 million operating loss - Cartons handled decreased 16.2% year-over-year, with a severe 38.6% drop in March 2020 due to retail closures[178][179] - The segment's operating margin deteriorated from 2.9% in Q1 2019 to -9.1% in Q1 2020[178][187] Liquidity and Capital Resources The company bolstered liquidity by drawing on and increasing its credit facility amid declining operating cash flow - To improve financial flexibility, the company fully drew its $150 million revolving credit facility and executed a $75 million amendment to increase this line[193] - The company deferred payroll and tax payments under the CARES Act, expecting an approximate $12 million cash flow benefit for 2020[193] Quantitative and Qualitative Disclosures About Market Risk Market risk exposure related to debt has not materially changed from the prior year-end disclosure - Exposure to market risk has not changed materially from the 2019 Form 10-K[203] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The Chief Executive Officer and Chief Financial Officer believe that disclosure controls and procedures are effective[204] - No changes in internal control over financial reporting occurred during Q1 2020 that have materially affected, or are reasonably likely to materially affect, internal controls[205] Part II. Other Information Legal Proceedings The company is involved in routine litigation not expected to have a material adverse effect on its business - The company is party to ordinary, routine litigation which is not expected to have a material adverse effect on its business, financial condition, or results of operations[206] Risk Factors Risk factors are updated to focus on the significant and uncertain impacts of the COVID-19 pandemic - The COVID-19 pandemic is identified as a major risk factor that could continue to have a material adverse effect on business, results of operations, and financial condition[209] - A key vulnerability is that the company's freight is typically not considered 'essential', making it susceptible to slowdowns from stay-at-home orders[211] - The company acknowledges the negative impact of COVID-19 may require it to record charges for asset impairments, including goodwill, in the future[215] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 268,027 shares for approximately $15.3 million during the first quarter of 2020 Q1 2020 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2020 | 3,791 | $69.65 | | February 2020 | 85,000 | $63.58 | | March 2020 | 179,236 | $54.60 | | Total | 268,027 | $56.93 | - As of March 31, 2020, 3,886,950 shares remained available for repurchase under the 2019 Repurchase Plan[217][95] Exhibits This section lists filed exhibits, including an amendment to the Credit Agreement and required CEO/CFO certifications - A key exhibit filed is the First Amendment dated April 16, 2020, to the Credit Agreement dated September 29, 2017[224] Signatures The report was duly signed by the Chief Financial Officer and Chief Accounting Officer on May 1, 2020 - The report was signed by Michael J. Morris (Chief Financial Officer) and Christina W. Bottomley (Chief Accounting Officer) on behalf of the registrant[227]