Forward Air(FWRD) - 2020 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) Unaudited Q2 2020 financials show significant net income decline, driven by COVID-19 and Pool Distribution reclassification Consolidated Balance Sheets By June 30, 2020, total assets increased to $1.07 billion, liabilities grew, and shareholders' equity slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,072,499 | $990,878 | | Total current assets | $247,291 | $236,318 | | Goodwill and other acquired intangibles, net | $389,385 | $340,556 | | Assets held for sale (Current & Noncurrent) | $86,464 | $91,656 | | Total Liabilities | $506,207 | $413,696 | | Total current liabilities | $146,852 | $137,164 | | Debt and finance lease obligations, less current portion | $136,549 | $72,249 | | Liabilities held for sale (Current & Noncurrent) | $60,117 | $61,917 | | Total Shareholders' Equity | $566,292 | $577,182 | Consolidated Statements of Comprehensive Income Q2 2020 operating revenue decreased 7.0% to $281.7 million, with net income plummeting to $3.2 million due to discontinued operations Q2 Financial Performance (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Operating Revenue | $281,678 | $302,887 | -7.0% | | Income from Continuing Operations | $13,914 | $29,070 | -52.1% | | Net Income from Continuing Operations | $9,225 | $21,244 | -56.6% | | (Loss) from Discontinued Operations | $(6,071) | $1,086 | N/A | | Net Income | $3,154 | $22,330 | -85.9% | | Diluted EPS | $0.11 | $0.78 | -85.9% | Six-Month Financial Performance (in thousands, except per share data) | Metric | H1 2020 | H1 2019 | Change | | :--- | :--- | :--- | :--- | | Operating Revenue | $587,235 | $581,848 | +0.9% | | Income from Continuing Operations | $29,687 | $52,772 | -43.7% | | Net Income from Continuing Operations | $20,641 | $38,931 | -47.0% | | (Loss) from Discontinued Operations | $(9,112) | $1,806 | N/A | | Net Income | $11,529 | $40,737 | -71.7% | | Diluted EPS | $0.40 | $1.41 | -71.6% | Consolidated Statements of Cash Flows H1 2020 operating cash flow was $59.9 million, investing activities used $69.2 million for acquisitions, and financing provided $25.4 million Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Continuing Operations | | | | Net cash provided by operating activities | $59,929 | $64,270 | | Net cash used in investing activities | $(69,157) | $(40,206) | | Net cash provided by (used in) financing activities | $25,395 | $(34,944) | | Discontinued Operations | | | | Cash (used in) provided by operating activities | $(4,672) | $7,494 | | Net Increase (Decrease) in Cash | $16,167 | $(10,880) | Notes to Consolidated Financial Statements Notes detail Pool Distribution divestiture, Linn Star acquisition, no goodwill impairment, and $132.5 million outstanding on the credit facility - On April 23, 2020, the Board approved a strategy to divest the Pool Distribution business, which is now classified as a discontinued operation and held for sale[21][27][36] - In January 2020, the company acquired Linn Star for $57.2 million to expand its Final Mile services within the Expedited Freight segment[44] - Annual goodwill impairment testing as of June 30, 2020, indicated no impairment, with the fair value of each reporting unit exceeding its carrying value by at least 49.4%[54] - As of June 30, 2020, the company had $132.5 million in borrowings outstanding under its revolving credit facility, with $77.1 million of available capacity[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's impact on volumes, strategic LTL and Final Mile growth, operating income decline, and liquidity enhancement measures Trends and Developments COVID-19 significantly impacted the business, leading to strategic LTL and Final Mile investments, Pool business divestiture, and increased ESG focus - The COVID-19 pandemic presents a meaningful challenge due to the company's exposure to air freight, ocean freight, and physical retail, impacting volumes in both Expedited Freight and Intermodal segments[139] - The company is making key investments to emerge as a stronger LTL competitor, integrating Final Mile operations, and growing its truckload brokerage[142] - To improve financial flexibility during the pandemic, the company increased its revolving credit facility by $75 million and deferred approximately $12 million in 2020 tax payments under the CARES Act[147] - The company is enhancing its ESG focus, appointing a head of Corporate ESG in Q1 2020 and partnering with programs like EPA SmartWay and Hope for the Warriors[151][153][156] Results of Operations Q2 2020 consolidated revenue fell 7.0% to $281.7 million, with operating income down 52.2%, impacted by declines in Expedited Freight Network and Intermodal Q2 2020 vs Q2 2019 Segment Performance (in millions) | Segment | Revenue Q2 2020 | Revenue Q2 2019 | % Change | Income from Ops Q2 2020 | Income from Ops Q2 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Expedited Freight | $235.7 | $253.3 | -6.9% | $11.8 | $28.2 | -58.2% | | Intermodal | $46.4 | $50.5 | -8.1% | $4.4 | $5.2 | -15.4% | | Total Continuing Ops | $281.7 | $302.9 | -7.0% | $13.9 | $29.1 | -52.2% | H1 2020 vs H1 2019 Segment Performance (in millions) | Segment | Revenue H1 2020 | Revenue H1 2019 | % Change | Income from Ops H1 2020 | Income from Ops H1 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Expedited Freight | $489.3 | $478.9 | +2.2% | $26.9 | $49.1 | -45.2% | | Intermodal | $98.9 | $104.6 | -5.4% | $8.1 | $11.4 | -28.9% | | Total Continuing Ops | $587.2 | $581.8 | +0.9% | $29.7 | $52.8 | -43.8% | - In Q2 2020, Expedited Freight's Network revenue fell $38.3 million (-22.2%) due to a 16.7% decrease in tonnage, while Final Mile revenue grew $28.4 million (+113.6%) driven by acquisitions[168][173] - Intermodal drayage shipments decreased 9.3% in Q2 2020 compared to the prior year, contributing to the segment's revenue decline[186][187] Liquidity and Capital Resources The company maintains strong liquidity with $80.9 million cash, H1 2020 operating cash flow of $59.9 million, $69.2 million used in investing, and $25.4 million from financing - As of June 30, 2020, the company had $80.9 million in cash and was in compliance with all debt covenants[242] - Net cash from continuing operating activities was $59.9 million for H1 2020, a decrease of $4.3 million from H1 2019[243] - Net cash used in continuing investing activities was $69.2 million in H1 2020, including $55.9 million for the Linn Star acquisition and $9.8 million for the Columbus, OH hub expansion[244] - Net cash provided by continuing financing activities was $25.4 million in H1 2020, reflecting a $55.0 million increase in borrowings and a $23.4 million decrease in share repurchases compared to H1 2019[245] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure from outstanding debt is not significant and remains unchanged from its 2019 Form 10-K disclosures - Exposure to market risk from outstanding debt is not significant and has not materially changed since the 2019 year-end report[253] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2020, with internal control changes for discontinued operations reporting - The CEO and CFO concluded that disclosure controls and procedures are effective[254] - Changes to internal controls were made during Q2 2020 to address the reporting requirements for discontinued operations and held-for-sale assets[255] Part II. Other Information Item 1. Legal Proceedings The company is involved in routine litigation, but no pending actions are expected to materially affect its financial condition or operations - The company is not involved in any legal proceedings that are expected to have a material adverse effect on its business[256] Item 1A. Risk Factors Updated risk factors highlight COVID-19's material adverse effects, including reduced demand, operational disruptions, and financial market volatility - The COVID-19 pandemic is highlighted as a significant risk factor that has adversely impacted economic activity, disrupted supply chains, and reduced demand for the company's services[259] - A key vulnerability is that much of the freight moved by the company is not considered "essential," leading to volume deterioration during stay-at-home orders and business closures[260] - The long-term impact of the pandemic on results, financial condition, and liquidity remains highly uncertain and depends on future developments[261][262] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No equity securities were repurchased in Q2 2020, with approximately 3.9 million shares remaining available under the repurchase program - No shares were repurchased during the three months ended June 30, 2020[265] - As of the end of Q2 2020, 3,886,950 shares were available for purchase under the existing share repurchase program[265] Item 5. Other Information The company entered an amended consulting agreement with former executive Matthew J. Jewell, effective July 1, 2020, for a monthly fee of $20,000 - The company entered into an amended consulting agreement with former executive officer Matthew J. Jewell, effective July 1, 2020[268]