Forward Air(FWRD) - 2021 Q1 - Quarterly Report

Part I. Financial Information This part presents the company's unaudited financial statements, management's analysis, and disclosures on market risk and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2021 - The financial statements are unaudited and prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and SEC rules[24] - The results for interim periods are not necessarily indicative of the results for the full year[24] Condensed Consolidated Balance Sheets Details the company's assets, liabilities, and shareholders' equity as of March 31, 2021, compared to December 31, 2020 Condensed Consolidated Balance Sheets (March 31, 2021 vs. December 31, 2020) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (vs. Dec 31, 2020) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------------------- | | Total Assets | $1,015,901 | $1,047,393 | -$31,492 (-3.01%) | | Total Current Assets | $247,986 | $245,896 | +$2,090 (+0.85%) | | Cash and cash equivalents | $24,396 | $40,254 | -$15,858 (-39.39%) | | Accounts receivable, net | $186,504 | $156,490 | +$30,014 (+19.18%) | | Total Liabilities | $464,170 | $505,064 | -$40,894 (-8.09%) | | Total Current Liabilities | $169,133 | $171,620 | -$2,487 (-1.45%) | | Total Shareholders' Equity | $544,731 | $547,329 | -$2,598 (-0.47%) | Condensed Consolidated Statements of Comprehensive Income Summarizes revenues, expenses, and net income for the three months ended March 31, 2021, compared to the prior year period Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31, 2021 vs. 2020) | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (YoY) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------- | | Operating revenue | $362,202 | $305,557 | +$56,645 (+18.5%) | | Total operating expenses | $339,478 | $289,785 | +$49,693 (+17.1%) | | Income from continuing operations | $22,724 | $15,772 | +$6,952 (+44.1%) | | Net income and comprehensive income | $11,181 | $8,375 | +$2,806 (+33.5%) | | Basic Net income per share | $0.40 | $0.30 | +$0.10 (+33.3%) | | Diluted Net income per share | $0.40 | $0.30 | +$0.10 (+33.3%) | | Dividends per share | $0.21 | $0.18 | +$0.03 (+16.7%) | Condensed Consolidated Statements of Cash Flows Outlines the cash inflows and outflows from operating, investing, and financing activities for the first quarter of 2021 and 2020 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2021 vs. 2020) | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (YoY) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------- | | Net cash provided by operating activities of continuing operations | $16,913 | $30,828 | -$13,915 (-45.1%) | | Net cash used in investing activities of continuing operations | $(17,030) | $(57,862) | +$40,832 (+70.6%) | | Net cash (used in) provided by financing activities from continuing operations | $(15,741) | $39,530 | -$55,271 (-139.8%) | | Net (decrease) increase in cash and cash equivalents of continuing operations | $(15,858) | $12,496 | -$28,354 (-226.9%) | | Cash and cash equivalents at end of period of continuing operations | $24,396 | $77,245 | -$52,849 (-68.4%) | Condensed Consolidated Statements of Shareholders' Equity Shows the changes in the company's equity accounts between December 31, 2020, and March 31, 2021 Condensed Consolidated Statements of Shareholders' Equity (March 31, 2021 vs. December 31, 2020) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (vs. Dec 31, 2020) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------------------- | | Total Shareholders' Equity | $544,731 | $547,329 | -$2,598 (-0.47%) | | Retained Earnings | $296,780 | $304,140 | -$7,360 (-2.42%) | | Common Stock Shares Outstanding | 27,318 | 27,316 | +2 (+0.01%) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of the company's accounting policies and specific financial statement items - Note 1. Description of Business and Basis of Presentation: Forward Air Corporation is an asset-light freight and logistics company with two reportable segments: Expedited Freight and Intermodal[21][22][23][25] - Note 2. Revenue Recognition: Revenue is recognized when performance obligations are satisfied, typically upon shipment delivery or completion of related services[26][27][29][30] - Note 3. Discontinued Operation and Held for Sale: The Pool business was sold on February 12, 2021, for $8,000 thousand in cash and a potential $12,000 thousand earn-out[32][33][34][37] Summarized Discontinued Operation Financial Information (Three Months Ended March 31, 2021 vs. 2020) | Metric | March 31, 2021 (in thousands) | March 31, 2020 (in thousands) | Change (YoY) | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------------------- | | Operating revenue | $17,087 | $36,952 | -$19,865 (-53.8%) | | Total operating expenses | $20,531 | $41,022 | -$20,491 (-49.9%) | | Loss from discontinued operation, net of tax | $(5,533) | $(3,040) | -$2,493 (-82.0%) | | Loss on sale of business | $(2,860) | $0 | -$2,860 (N/A) | - Note 4. Acquisitions: In February 2021, the Company acquired Proficient Transport for $15,000 thousand and a potential $2,000 thousand earn-out, expanding its Intermodal footprint[40][41][42] Proficient Transport Acquisition: Fair Value of Assets Acquired and Liabilities Assumed (February 28, 2021) | Asset/Liability Type | Amount (in thousands) | | :---------------------- | :-------------------- | | Tangible assets | $4,015 | | Intangible assets | $11,832 | | Goodwill | $5,754 | | Total assets acquired | $15,847 | | Liabilities assumed | $32 | | Net assets acquired | $15,815 | - Note 5. Goodwill and Other Intangible Assets: Goodwill increased by $5,754 thousand to $250,736 thousand as of March 31, 2021, primarily due to the Proficient Transport acquisition[47][48] - Note 6. Stock Incentive Plans: Total share-based compensation expense for Q1 2021 was $2,285 thousand[51][53][56][61] - Note 7. Indebtedness: As of March 31, 2021, the Company had $112,500 thousand in outstanding borrowings under its revolving credit facility, with an interest rate of 3.25%[66][67][68][69] - Note 8. Net Income (Loss) Per Share: Basic and diluted net income per share from continuing operations were $0.61 and $0.60, respectively, for Q1 2021[72] - Note 9. Income Taxes: The effective tax rate for continuing operations was 22.5% for Q1 2021, down from 23.5% in Q1 2020[75][77] - Note 10. Fair Value of Financial Instruments: The earn-out liability, classified as Level 3, increased to $7,632 thousand as of March 31, 2021, from $6,865 thousand at December 31, 2020[80][81] - Note 11. Shareholders' Equity: The Company declared a quarterly cash dividend of $0.21 per common share for Q1 2021 and Q2 2021[84][87][88] - Note 12. Commitments and Contingencies: The Company is party to routine legal claims not deemed material and retains risk on vehicle liability and workers' compensation insurance[89][90][92] - Note 13. Segment Reporting: The Company operates two reportable segments: Expedited Freight and Intermodal, with external revenues for Q1 2021 of $303,531 thousand and $58,502 thousand, respectively[95][97] Expedited Freight Revenue Breakdown (Three Months Ended March 31, 2021 vs. 2020) | Revenue Type (in thousands) | March 31, 2021 | March 31, 2020 | Change (YoY) | | :-------------------------- | :------------- | :------------- | :----------- | | Network | $178,627 | $152,009 | +17.5% | | Truckload | $52,380 | $47,529 | +10.2% | | Final Mile | $62,256 | $47,802 | +30.2% | | Other | $10,923 | $6,285 | +73.8% | | Total | $304,186 | $253,625 | +19.9% | - Note 14. Subsequent Event: On April 28, 2021, the Company agreed to acquire J&P Hall Express Delivery for $7,400 thousand[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for Q1 2021 - Forward Air Corporation is a leading asset-light freight and logistics company providing LTL, final mile, truckload, and intermodal drayage services[102] - The Company's strategy focuses on increasing freight volume, growing LTL and final mile solutions, and executing synergies across services[106] - The Pool Distribution business was divested on February 12, 2021, and its results are presented as a discontinued operation[107] Overview Describes the company's two reportable segments, Expedited Freight and Intermodal, and their respective service offerings and growth plans - The Company operates two reportable segments: Expedited Freight and Intermodal[103] - Expedited Freight provides LTL, final mile, truckload, warehousing, and customs brokerage services, with plans for geographic expansion[104] - Intermodal offers first- and last-mile drayage services, with plans to grow its geographic footprint through acquisitions and greenfield start-ups[105] Trends and Developments Discusses the impact of COVID-19, recent acquisitions and divestitures, and the company's ESG initiatives - Business operations have returned to pre-COVID levels, but the future impact of the pandemic remains uncertain[109] - In February 2021, the Company acquired Proficient Transport for $15,000 thousand and a potential earn-out, expanding its intermodal footprint[112] - The sale of the Pool business on February 12, 2021, generated an $8,000 thousand cash payment and resulted in a $2,860 thousand loss on sale[113] - The Company initiated ESG market analysis in 2020 and published its first ESG report in Q1 2021[116][117][118] Results from Operations (Consolidated) Provides a consolidated overview of the company's financial performance for Q1 2021 compared to Q1 2020 Consolidated Financial Data from Operations (Three Months Ended March 31, 2021 vs. 2020) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | Change | Percent Change | | :------------------------------------ | :------------- | :------------- | :----- | :------------- | | Operating revenue | $362,202 | $305,557 | $56,645 | 18.5% | | Total operating expenses | $339,478 | $289,785 | $49,693 | 17.1% | | Income from continuing operations | $22,724 | $15,772 | $6,952 | 44.1% | | Net income and comprehensive income | $11,181 | $8,375 | $2,806 | 33.5% | - Operating revenue increased by 18.5%, primarily driven by a $50,561 thousand increase in the Expedited Freight segment[120] - Total operating expenses increased by 17.1%, mainly due to a $34,010 thousand increase in purchased transportation[121] - Interest expense increased by 36.6% to $1,165 thousand, attributable to a higher interest rate on outstanding borrowings[123] - Loss from discontinued operations, net of tax, increased by 82.0% to $5,533 thousand, including a $2,860 thousand loss on the sale of the Pool business[125] Expedited Freight Segment Analysis Details the financial and operational performance of the Expedited Freight segment for Q1 2021 versus Q1 2020 Expedited Freight Segment Information (Three Months Ended March 31, 2021 vs. 2020) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | Change | Percent Change | | :-------------------- | :------------- | :------------- | :----- | :------------- | | Operating revenue | $304,186 | $253,625 | $50,561 | 19.9% | | Total operating expenses | $279,656 | $238,446 | $41,210 | 17.3% | | Income from operations | $24,530 | $15,179 | $9,351 | 61.6% | - Operating revenue increased by 19.9%, driven by a 17.5% increase in Network revenue and a 30.2% increase in Final Mile revenue[134] - Purchased transportation increased by 23.8% to $164,364 thousand, representing 54.0% of operating revenue[135] - Income from operations increased by 61.6%, reaching 8.1% of operating revenue, up from 6.0%[142] Expedited Freight Operating Statistics (Three Months Ended March 31, 2021 vs. 2020) | Metric | March 31, 2021 | March 31, 2020 | Percent Change | | :-------------------------- | :------------- | :------------- | :------------- | | Total pounds (in thousands) | 651,339 | 569,956 | 14.3% | | Total shipments (in thousands) | 1,026 | 885 | 15.9% | | Revenue per hundredweight | $27.56 | $27.16 | 1.5% | | Network gross margin | 51.9% | 53.4% | (2.8)% | Intermodal Segment Analysis Details the financial and operational performance of the Intermodal segment for Q1 2021 versus Q1 2020 Intermodal Segment Information (Three Months Ended March 31, 2021 vs. 2020) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | Change | Percent Change | | :-------------------- | :------------- | :------------- | :----- | :------------- | | Operating revenue | $58,514 | $52,460 | $6,054 | 11.5% | | Total operating expenses | $54,005 | $48,747 | $5,258 | 10.8% | | Income from operations | $4,509 | $3,713 | $796 | 21.4% | - Operating revenue increased by 11.5%, primarily due to a 9.0% increase in drayage shipments[146] - Purchased transportation increased by 13.4% to $20,603 thousand, representing 35.2% of operating revenue[147] - Income from operations increased by 21.4%, reaching 7.7% of operating revenue, up from 7.1%[154] Intermodal Operating Statistics (Three Months Ended March 31, 2021 vs. 2020) | Metric | March 31, 2021 | March 31, 2020 | Percent Change | | :-------------------------- | :------------- | :------------- | :------------- | | Drayage shipments | 89,909 | 82,474 | 9.0% | | Drayage revenue per shipment | $553 | $551 | 0.4% | | Number of locations | 27 | 24 | 12.5% | Other Operations Analysis Explains the results of other operating activities, which resulted in an increased operating loss compared to the prior year - Other operating activity resulted in a $6,315 thousand operating loss for Q1 2021, compared to a $3,120 thousand loss in Q1 2020[155] - The increased loss was primarily due to $6,955 thousand in increased professional fees related to cybersecurity and shareholder engagement activities[155] Critical Accounting Policies Highlights the key accounting estimates and assumptions management uses in preparing the financial statements - The Company's financial statements rely on management's estimates and assumptions, including those for goodwill and self-insurance loss reserves[156] - These estimates are based on historical experience and various other assumptions, and actual results may differ[156] Liquidity and Capital Resources Discusses the company's sources of liquidity, capital expenditures, and ability to meet its financial obligations - The Company historically finances working capital needs with cash flows from operations and borrowings under its revolving credit facility[157] - Management believes current liquidity sources are sufficient to support working capital, capital expenditures, and debt service requirements[157] - The Company was in compliance with all financial covenants of its revolving credit facility as of March 31, 2021[159] Cash Flows Analysis Analyzes the changes in cash flows from operating, investing, and financing activities for both continuing and discontinued operations Cash Flows from Continuing Operations (Three Months Ended March 31, 2021 vs. 2020) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | Change (YoY) | | :------------------------------------------------- | :------------- | :------------- | :----------- | | Net cash provided by operating activities | $16,913 | $30,828 | -$13,915 | | Net cash used in investing activities | $(17,030) | $(57,862) | +$40,832 | | Net cash (used in) provided by financing activities | $(15,741) | $39,530 | -$55,271 | - The decrease in net cash from continuing operating activities was primarily due to an increase in other receivables related to the Pool business sale[160] - Net cash used in continuing investing activities decreased due to lower acquisition spending in 2021 versus 2020[161] - Net cash from continuing financing activities shifted to a net outflow, primarily due to no proceeds from the revolving credit facility in 2021[162] Cash Flows from Discontinued Operation (Three Months Ended March 31, 2021 vs. 2020) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | Change (YoY) | | :------------------------------------------------- | :------------- | :------------- | :----------- | | Net cash used in operating activities | $(6,902) | $(1,662) | -$5,240 | | Net cash provided by (used in) investing activities | $8,020 | $(491) | +$8,511 | | Net cash used in financing activities | $(1,118) | $2,153 | -$3,271 | - Net cash provided by discontinued investing activities increased significantly due to $8,000 thousand in proceeds from the sale of the Pool business[164] Share Repurchase Program Provides details on the company's common stock repurchases during the first quarter of 2021 Common Stock Repurchases (Three Months Ended March 31, 2021 vs. 2020) | Metric | Q1 2021 | Q1 2020 | Change (YoY) | | :-------------------------------- | :-------- | :-------- | :----------- | | Shares Repurchased | 113,756 | 268,027 | -154,271 | | Total Cost (in thousands) | $9,998 | $15,259 | -$5,261 | | Average Price Per Share | $87.89 | $56.93 | +$30.96 | - The repurchases were made under the 2019 Repurchase Plan, which authorizes up to 5,000,000 shares[175] Forward-Looking Statements Cautions readers that the report contains statements about future performance that are subject to risks and uncertainties - This section highlights that the report contains forward-looking statements regarding future events and financial performance[167] - Actual results may differ materially due to various factors, including economic conditions, the COVID-19 pandemic, and competition[168] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company refers to its Annual Report on Form 10-K for detailed disclosures about market risks, with no material changes in Q1 2021 - Detailed disclosures about market risks are provided in Item 7A of Part II of the Annual Report on Form 10-K for the year ended December 31, 2020[170] - As of the first quarter 2021, there have been no material changes in the Company's exposures to market risk[170] Item 4. Controls and Procedures Management evaluated the Company's disclosure controls and procedures and concluded they are effective as of March 31, 2021 Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures as of the end of the reporting period - Management, with the participation of the Chief Executive Officer, concluded that the disclosure controls and procedures were effective as of March 31, 2021[171] Changes in Internal Control States that no material changes occurred in the company's internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the three months ended March 31, 2021, that materially affected internal controls[172] Part II. Other Information Contains information on legal proceedings, risk factors, share repurchases, and other corporate matters Item 1. Legal Proceedings The Company is routinely involved in ordinary litigation that is not expected to be material to its business or financial condition - The Company is a party to ordinary, routine litigation incidental to its business, mostly involving claims for personal injury and property damage[173] - Management does not believe that any of these pending actions will have a material adverse effect on the Company's business or financial condition[173] Item 1A. Risk Factors This section refers to the detailed discussion of risk factors in the Company's Annual Report on Form 10-K - For quantitative and qualitative disclosures about market risks, refer to the Annual Report on Form 10-K for the year-ended December 31, 2020[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 113,756 shares for $9,998 thousand during Q1 2021 under its 2019 Repurchase Plan Issuer Purchases of Equity Securities (Three Months Ended March 31, 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | January 1, 2021 through January 31, 2021 | — | $— | | February 1, 2021 through February 28, 2021 | 13,000 | $87.00 | | March 1, 2021 through March 31, 2021 | 100,756 | $88.00 | | Total | 113,756 | $87.89 | - As of March 31, 2021, approximately 3,254,695 shares remained authorized for repurchase under the 2019 Repurchase Plan[175] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable[176] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable[176] Item 5. Other Information The Company entered into an Advisory Agreement with a former executive officer to provide transition services - An Advisory Agreement was entered into with Michael J. Morris, effective April 5, 2021, to provide advisory services during the CFO transition[177] - Mr. Morris will receive a fixed monthly fee of $10,000, which will be reduced to $5,000 per month after the new CFO commences employment[177] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including charters, bylaws, and certifications - Key exhibits include the Restated Charter, Amended and Restated Bylaws, Advisory Agreement, and various officer certifications[180] Signatures Confirms the report's authorization by the company's President & CEO and Chief Accounting Officer on May 3, 2021 Signatures The report is duly signed on behalf of the company by its President & CEO and its Chief Accounting Officer on May 3, 2021 - The report was signed by Thomas Schmitt, President and Chief Executive Officer, and Rebecca J. Garbrick, Vice President, Chief Accounting Officer and Controller[182][183] - The signing date was May 3, 2021[182][183]