Forward Air Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results; amounts below are in millions unless stated otherwise. Forward Air is an asset-light freight and logistics company operating in Expedited Freight and Intermodal. The Pool Distribution business was sold February 12, 2021 and is reported as a discontinued operation.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $419.6 | $332.0 | $1,202.5 | $919.2 |
| Income from continuing operations | $42.5 | $23.5 | $107.3 | $53.2 |
| Net income from continuing operations | $30.5 | $17.0 | $77.9 | $37.6 |
| Net income, including discontinued operations | $23.5 | $16.6 | $65.4 | $28.2 |
| Diluted EPS, continuing operations | $1.12 | $0.61 | $2.83 | $1.35 |
| Diluted EPS, total | $0.86 | $0.60 | $2.37 | $1.01 |
- Q3 revenue rose 26.4%; income from continuing operations increased 80.7%. Nine-month revenue rose 30.8%, and continuing-operations income increased 101.7%.
- Q3 continuing-operations operating margin was approximately 10.1%, versus 7.1% a year earlier; nine-month margin was approximately 8.9%, versus 5.8%.
- Q3 segment revenue grew 20.5% in Expedited Freight and 59.7% in Intermodal. Segment operating margins improved to 10.1% and 11.1%, respectively, from 8.3% and 9.9%.
- For the first nine months, continuing operating cash flow was $82.8, capital expenditures $23.0, and continuing investing cash outflow $43.7. Cash and equivalents were $51.9 at September 30, 2021, up from $40.3 at year-end 2020.
- Revolver borrowings were $157.5; letters of credit used $17.3 and available borrowing capacity was $50.2. Balance-sheet debt and finance lease obligations totaled approximately $163.2, including current obligations. The facility matures July 20, 2026; the company reported covenant compliance.
- Current assets were $289.3 and current liabilities $158.5 at quarter-end. Accounts receivable was $205.2; this includes a $14.2 reimbursement receivable under the Pool transition-services arrangement, which management considered collectible.
Material changes and unusual items
- Growth reflected economic recovery from the COVID-19-affected 2020 comparison, higher freight volumes and revenue per shipment, pricing and freight-rationalization initiatives, and acquisitions. Fuel surcharges also rose with fuel prices.
- Cost increases included purchased transportation, labor, fuel, insurance and claims, and other operating expenses. Management cited labor shortages and competition for owner-operators as increasing operating costs.
- Q3 discontinued-operation loss of $7.0 included a non-cash full impairment of the $7.0 estimated Pool earn-out asset after deterioration in Pool’s performance and revised forecasts. Nine-month discontinued loss was $12.5, including a $2.9 loss on sale.
- The company repurchased $49.0 of stock and paid $17.3 in dividends during the first nine months. A quarterly dividend of $0.21 per share was declared for payment in Q4.
- Acquisitions included Proficient Transport ($15.5) and J&P Hall Express Delivery ($7.5). On November 1, 2021, Forward Air agreed to acquire BarOle Trucking assets and liabilities for $35.4, a subsequent event.
Outlook, risks and contingencies
The filing gives no numerical earnings or revenue guidance. Management said available cash, operating cash flow and the revolving facility should support working capital, capital spending and debt service for the foreseeable future. It aims to expand through acquisitions and greenfield operations. Management described operations as returned to pre-COVID levels but noted uncertainty from COVID-19 and variants.
- Risks discussed include labor and freight-capacity shortages, inflation and fuel-price changes, economic weakness, customer credit and bad debts, competition and pricing pressure, acquisition integration, and potential liquidity constraints.
- Vehicle liability, workers’ compensation, cargo and other claims are subject to self-insured retentions. Management considered reserves sufficient, but stated ultimate claims outcomes are uncertain and reserves could change materially; it could not estimate a reasonably possible additional loss range.
- Routine litigation is outstanding; management did not expect resolution, considering recorded reserves, to materially adversely affect results, while acknowledging outcomes are difficult to predict.
- The Pool TSA reimbursement receivable is subject to collection risk. Its $14.2 balance was due from the buyer for vendor payments made on its behalf.
Investor verification checklist
- Check whether freight volumes, pricing and segment margins remain strong as comparisons normalize, and whether fuel, labor and capacity costs erode profitability.
- Monitor collection of the $14.2 Pool-related receivable and confirm whether any additional earn-out proceeds are realized; the recorded earn-out asset was fully impaired.
- Review utilization of the revolver, borrowing capacity, debt maturities and covenant compliance, particularly following the BarOle transaction.
- Assess acquisition integration and returns from Proficient Transport, J&P and the announced BarOle acquisition; purchase accounting for 2021 acquisitions was preliminary.
- Track insurance and claims reserve development, customer credit losses, and the effects of labor shortages and COVID-19 conditions.