Part I: Financial Information Financial Statements (Unaudited) The unaudited financial statements for Q3 and nine months ended September 30, 2023, reflect a significant year-over-year decline in revenue, net income, and operating cash flow, despite stable total assets and ongoing acquisition activities Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,843 | $45,822 | | Total current assets | $237,730 | $304,315 | | Goodwill | $356,763 | $306,184 | | Total assets | $1,190,581 | $1,208,076 | | Liabilities & Equity | | | | Total current liabilities | $190,441 | $169,398 | | Long-term debt, less current portion | $118,857 | $106,588 | | Total shareholders' equity | $665,700 | $707,244 | | Total liabilities and shareholders' equity | $1,190,581 | $1,208,076 | Condensed Consolidated Statements of Comprehensive Income Q3 2023 vs Q3 2022 Performance (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Operating revenues | $413,447 | $510,023 | | Income from operations | $15,493 | $71,665 | | Net income | $9,288 | $52,133 | | Diluted EPS | $0.36 | $1.93 | Nine Months 2023 vs 2022 Performance (in thousands, except per share) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Operating revenues | $1,242,695 | $1,492,203 | | Income from operations | $96,213 | $204,561 | | Net income | $65,607 | $150,249 | | Diluted EPS | $2.50 | $5.53 | Condensed Consolidated Statements of Cash Flows Nine Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $159,431 | $196,814 | | Net cash used in investing activities | ($76,846) | ($64,411) | | Net cash used in financing activities | ($109,564) | ($122,873) | | Net (decrease) increase in cash | ($26,979) | $9,530 | Notes to Condensed Consolidated Financial Statements - The company operates two reportable segments: Expedited Freight (providing LTL, truckload, and final mile services) and Intermodal (providing first- and last-mile drayage services)282930 - In January 2023, the company acquired Land Air Express, Inc. for $56.6 million to expand its national terminal footprint, recording $50.4 million in goodwill for the Expedited Freight segment3659 - On August 10, 2023, the company entered into a merger agreement to acquire Omni Newco LLC for $150 million in cash plus significant common and convertible preferred equity, involving complex financing arrangements and a Tax Receivable Agreement374849 - The company incurred $22.4 million in due diligence and transaction costs in Q3 2023 related to the Omni acquisition, recorded in 'Other operating expenses'55 - The company is involved in significant legal proceedings related to the Omni merger, including a shareholder complaint questioning the need for a shareholder vote and a complaint from Omni seeking to compel the closing of the transaction102104 - The company paid a quarterly cash dividend of $0.24 per share and repurchased 883,000 shares for $93.8 million during the first nine months of 202398100 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant decline in Q3 and nine-month revenue and profitability to a challenging freight environment, lower segment volumes, pricing pressure, and substantial Omni acquisition transaction costs Results from Operations - Three Months Ended Consolidated Results - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $413,447 | $510,023 | (18.9)% | | Income from operations | $15,493 | $71,665 | (78.4)% | | Net income | $9,288 | $52,133 | (82.2)% | - The decline in Q3 revenue was driven by a $44.3 million decrease in the Expedited Freight segment and a $52.2 million decrease in the Intermodal segment144 - The 'Other Operations' category reported a significant operating loss of $25.6 million in Q3 2023, compared to a $1.2 million loss in Q3 2022, primarily due to $22.4 million in transaction costs for the Omni acquisition143176 Segment Analysis - Three Months Ended - Expedited Freight: Q3 revenue fell 11.2% to $351.3 million, and operating income dropped 35.4% to $36.4 million, caused by a 1.8% decrease in tonnage and an 8.8% decrease in revenue per hundredweight, reflecting softer demand150152154 - Intermodal: Q3 revenue plummeted 45.7% to $62.2 million, with operating income falling 71.4% to $4.7 million, driven by a 23.2% decrease in drayage shipments and a 31.6% drop in drayage revenue per shipment due to weak market demand164165167 Results from Operations - Nine Months Ended Consolidated Results - Nine Months 2023 vs 2022 (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $1,242,695 | $1,492,203 | (16.7)% | | Income from operations | $96,213 | $204,561 | (53.0)% | | Net income | $65,607 | $150,249 | (56.3)% | - The 'Other Operations' category reported a $24.3 million operating loss for the nine-month period, up from a $5.5 million loss in the prior year, primarily due to $27.9 million in Omni acquisition-related costs213 Liquidity and Capital Resources - Net cash from operating activities decreased to $159.4 million for the nine months of 2023 from $196.8 million in the prior year, primarily due to lower net income219 - Investing activities used $76.8 million, including $56.7 million for the acquisition of Land Air Express and $23.4 million in capital expenditures220 - Financing activities used $109.6 million, which included $93.8 million for common stock repurchases and $18.8 million for dividend payments221222 - In connection with the Omni merger, the company commenced a private offering of $725 million in 9.50% senior secured notes due 2031, which closed on October 2, 2023217 Quantitative and Qualitative Disclosures About Market Risk The company states that there were no material changes in its exposures to market risk during the third quarter of 2023 compared to the disclosures in its 2022 Annual Report on Form 10-K - There were no material changes in the company's exposures to market risk as of the third quarter of 2023227 Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO believe the company's disclosure controls and procedures are effective228 - No material changes to internal control over financial reporting were identified during the third quarter of 2023229 Part II: Other Information Legal Proceedings The company is involved in significant legal disputes regarding the Omni merger, including a shareholder complaint seeking a vote and Omni's complaint alleging breach of agreement and seeking to compel closing - A shareholder complaint was filed seeking to enjoin the Omni merger until a shareholder vote is held, with a temporary restraining order initially issued but later dissolved231 - On October 31, 2023, Omni filed a complaint against Forward Air, alleging a breach of the merger agreement and seeking to compel the company to close the transaction232 - Forward Air believes Omni has not complied with certain obligations under the merger agreement, and as a result, the company is not obligated to close the transaction and intends to vigorously defend its rights232 Risk Factors New risk factors primarily relate to the pending Omni merger, encompassing potential litigation costs, integration challenges, failure to realize benefits, expanded international operational risks, and substantial Tax Receivable Agreement payment obligations - Ongoing legal disputes with Omni regarding the merger could incur substantial costs, divert management's attention, and adversely affect business and financial results236 - There is a risk of failing to realize the projected benefits and cost savings of the Omni combination due to integration challenges, potential loss of key employees or customers, and unforeseen liabilities238239 - The combined company's expanded international operations will expose it to increased risks, including foreign currency fluctuations, political instability, and complex compliance with foreign laws and trade regulations244255 - The merger may not be completed due to failure to satisfy closing conditions, and the pending transaction creates business uncertainty that could adversely affect relationships with customers and suppliers259265 - The company will be required to make potentially substantial payments to Omni holders under a Tax Receivable Agreement for certain tax savings it may realize post-merger277278 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 124,026 common shares at an average price of $113.05, with approximately 1.35 million shares remaining authorized under the 2019 Repurchase Plan Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 86,609 | $112.18 | | August 2023 | 37,417 | $115.07 | | September 2023 | 0 | N/A | | Total | 124,026 | $113.05 | - As of September 30, 2023, 1,349,041 shares may yet be purchased under the 2019 Repurchase Plan280 Other Information During the third quarter of 2023, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the three months ended September 30, 2023283 Exhibits This section lists the exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger with Omni, the company's charter and bylaws, and certifications from the Principal Executive Officer and Principal Financial Officer
Forward Air(FWRD) - 2023 Q3 - Quarterly Report