Forward Air Corporation — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with the same period in 2021. Forward Air is an asset-light freight and logistics company operating in Expedited Freight and Intermodal in the U.S. and Canada. Amounts below are in millions unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $466.961 | $362.202 |
| Income from continuing operations | $57.351 | $22.724 |
| Net income | $42.686 | $11.181 |
| diluted EPS | $1.57 | $0.40 |
| Operating cash flow, continuing operations | $62.486 | $16.913 |
| Capital expenditures | $9.908 | $2.695 |
Operating margin on continuing operations was approximately 12.3%, versus 6.3%. Net income in Q1 2021 included a $5.533 million after-tax loss from the Pool business, sold in February 2021; continuing-operations earnings provide a more comparable view.
- Revenue and segments: Revenue increased 28.9%. Expedited Freight revenue rose 23.8% to $376.6 million, with segment operating margin improving to 12.7% from 8.1%. Intermodal revenue rose 54.6% to $90.4 million, and its operating margin increased to 12.3% from 7.7%.
- Costs and profitability: Operating expenses increased 20.7%, slower than revenue growth. Purchased transportation rose 21.8%; salaries, wages and benefits rose 14.9%; fuel expense rose 58.4%. Management attributed cost pressures to higher carrier costs, labor and fuel, among other factors.
- Cash flow and investment: Operating cash flow increased to $62.5 million. Investing cash outflow was $9.4 million, including $9.9 million of capital expenditures, primarily for Columbus hub expansion and technology. Financing cash outflow was $28.8 million, including $17.8 million of share repurchases and $6.5 million of dividends.
- Liquidity and debt: Cash was $61.6 million at March 31, 2022, versus $37.3 million at year-end 2021. Credit-facility borrowings were $157.1 million; available borrowing capacity was $272.5 million. The company reported compliance with its credit-facility covenants. Current assets were $325.3 million and current liabilities $187.9 million.
Changes, outlook and risks
Expedited Freight Network revenue growth reflected 10.2% higher tonnage and an 18.5% increase in revenue per hundredweight; shipments fell 13.1%, while weight per shipment rose 26.6%. Intermodal drayage shipments declined 1.8%, but revenue per shipment increased 60.9%, supported by pricing, accessorial revenue, demand and the 2021 BarOle acquisition. The company continued its strategy of expanding both segments through acquisitions and greenfield locations.
No specific earnings or revenue guidance was provided in the supplied filing text. Management said cash, operating cash flow and credit-facility availability should support working capital, capital expenditures and debt service for the foreseeable future. It cited labor shortages and inflation as increasing labor and purchased-transportation costs; fuel surcharges may not fully offset fuel-price changes. COVID-19 and its variants, economic conditions, customer creditworthiness, competition, carrier availability, acquisition integration and insurance claims were identified as uncertainties. Self-insurance estimates could change materially in the near term, though management said it could not estimate a reasonably possible additional loss range.
Subsequent event: On May 6, 2022, Forward Air agreed to acquire Edgmon Trucking for $40 million, with closing expected in Q2 2022. The filing describes this as its first Intermodal location on the West Coast. The board also declared a $0.24-per-share dividend for payment in Q2.
Investor verification priorities
- Track whether pricing and shipment mix sustain margins as labor, fuel and third-party carrier costs fluctuate.
- Review Intermodal growth and expense trends, including integration and returns from BarOle and the proposed Edgmon acquisition.
- Monitor working-capital movements, particularly receivables, and the adequacy of customer and self-insurance reserves.
- Verify credit-facility capacity, covenant compliance, debt service and capital allocation between acquisitions, repurchases and dividends.
- Distinguish continuing-operations performance from prior-period results affected by the Pool disposal.