Forward Air Corporation — Q2 2021 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2021. Forward Air is an asset-light freight and logistics company operating in the United States and Canada through Expedited Freight and Intermodal. Results are presented for continuing operations unless noted. The Pool Distribution business was sold on February 12, 2021 and is reported as discontinued.
Key financial metrics
Amounts below are in millions, except per-share amounts and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $420.7 | $281.7 | $782.9 | $587.2 |
| Operating income, continuing operations | $42.1 | $13.9 | $64.8 | $29.7 |
| Net income, continuing operations | $30.7 | $9.2 | $47.4 | $20.6 |
| Net income including discontinued operations | $30.7 | $3.2 | $41.9 | $11.5 |
| Diluted EPS, continuing operations | $1.11 | $0.33 | $1.71 | $0.72 |
| Operating margin, continuing operations | 10.0% | 4.9% | 8.3% | 5.1% |
- Revenue and segment performance: Q2 revenue grew 49.3% year over year. Expedited Freight revenue rose 49.3% to $351.7 million and Intermodal revenue rose 48.9% to $69.1 million. Segment operating margins improved to 9.9% from 5.0% in Expedited Freight and 12.1% from 9.5% in Intermodal. Management attributed growth to the economic recovery, higher shipment volumes, pricing actions, and acquisitions.
- Cash flow: Continuing operating cash flow was $39.7 million for the first six months, down from $59.9 million. Continuing investing used $29.8 million, including $8.6 million of capital expenditures and $22.5 million for acquisitions. Continuing financing provided $0.7 million. Cash increased by $10.6 million to $50.8 million.
- Debt and liquidity: Revolver borrowings were $157.5 million, with $49.2 million of available capacity after $18.3 million of letters of credit. The balance sheet reported $163.6 million of current and long-term debt and finance lease obligations combined. Current assets were $297.0 million versus current liabilities of $169.3 million. The company reported compliance with credit-facility covenants.
- Capital returns: The company repurchased 366,000 shares for $34.0 million during the first half and paid $0.42 per share in dividends. The Board declared another $0.21 quarterly dividend in July.
Material changes versus the prior comparable period
- Q2 revenue increased $139.0 million and continuing operating income increased $28.2 million year over year; six-month revenue rose 33.3% and continuing operating income rose 118.4%.
- Expedited Freight network tonnage increased 39.5% in Q2; revenue per hundredweight increased 8.8%. Intermodal drayage shipments grew 40.3% and revenue per shipment rose 11.2%.
- Operating expenses grew more slowly than revenue in Q2 overall, though purchased transportation costs rose 51.5% and fuel expense rose 61.1%. Management cited higher volumes, fuel prices, insurance costs and a changed freight-capacity mix among cost drivers.
- Pool’s Q2 2020 after-tax loss of $6.1 million did not recur in Q2 2021 because the business had been sold. First-half 2021 discontinued operations included a $2.9 million loss on sale and a total after-tax loss of $5.5 million.
Outlook, risks and unusual items
- Outlook: The filing provides no quantified earnings or revenue guidance. Management said it believes available cash, operating cash flow and borrowing capacity will support working capital, capital expenditures and debt service for the foreseeable future, and expects to remain covenant-compliant.
- Credit facility update: In July 2021, after quarter-end, the company extended the revolver maturity to July 20, 2026, replaced LIBOR with BSBY as a reference-rate option, and made provision for potential facility increases up to $300 million, subject to lender commitments and agreement.
- COVID-19 and operating risks: Management said operations had returned to pre-pandemic levels but warned that the pandemic and variants remained uncertain. Risks include economic downturns and inflation, customer creditworthiness, availability and cost of drivers and carriers, fuel prices, competition and pricing pressure, acquisition integration, information-system capacity, insurance claims and regulation.
- Pool sale and transition: The sale generated $8.0 million cash and could yield up to $12.0 million in an EBITDA-based earn-out. The earn-out’s estimated fair value at sale was $7.0 million. Under a transition-services agreement, Forward Air paid certain Pool vendor expenses and recorded a $13.5 million reimbursement receivable at June 30; reimbursement is due within 60 days of month-end, subject to the agreement’s $18.0 million cap.
- Other matters: The company acquired Proficient Transport for $15.5 million plus a potential earn-out and J&P Hall Express Delivery for $7.5 million. It reported no goodwill impairment indicators. Routine litigation and self-insured claims remain; management said current reserves are expected to be sufficient, but the possible range of additional losses could not be estimated. Management reported disclosure controls as effective and no material change in internal control.
Important facts for investors to verify
- Whether revenue and margin growth are sustained beyond the rebound from the COVID-affected 2020 comparison period, and how volume, pricing and freight-capacity mix contribute.
- Collection of the $13.5 million Pool-related reimbursement receivable and the eventual amount and timing of the Pool earn-out.
- Cash generation and working-capital trends, particularly the increased accounts receivable and other receivables that reduced first-half operating cash flow.
- Revolver utilization, borrowing costs, covenant headroom and the terms and lender availability associated with the July 2021 facility amendment.
- Integration and performance of recent acquisitions, and developments in insurance, vehicle-liability and workers’ compensation claims.