Forward Air Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with the three months ended March 31, 2011 unless stated otherwise. Forward Air provides time-definite transportation and logistics services; Forward Air Solutions (FASI) provides regional pool distribution. Figures below are in millions of dollars, except per-share data and where noted.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $137.1 | $120.2 | +14.1% |
| Operating income | $16.8 | $13.3 | +26.3% |
| Operating margin | 12.3% | 11.1% | +1.2 percentage points |
| Net income | $10.3 | $7.9 | +30.4% |
| Diluted EPS | $0.35 | $0.27 | +29.6% |
| Operating cash flow | $18.0 | $15.2 | +$2.8 |
| Capital expenditures | $13.1 | $7.3 | +$5.8 |
Net margin was approximately 7.5%, versus 6.5%. Operating cash flow less capital expenditures was approximately $4.9 million, compared with $7.9 million a year earlier. Cash increased to $69.4 million from $58.8 million at year-end 2011. Total assets were $364.8 million and shareholders’ equity was $304.8 million.
Debt and capital lease obligations totaled approximately $0.7 million at March 31, 2012, including $0.5 million current. The company had no borrowings under its new credit facility. Current assets of $155.4 million exceeded current liabilities of $40.2 million.
Material changes and operating trends
- Forward Air segment revenue grew 12.5% to $118.4 million. Airport-to-airport revenue rose 10.5%, with tonnage up 5.4% and base revenue per pound, excluding fuel surcharge and Complete revenue, up 1.0%. Logistics revenue increased 28.9%, reflecting higher TLX miles and revenue per mile.
- FASI revenue increased 26.3% to $19.2 million, primarily from new business and higher volumes. Its operating loss narrowed to $0.6 million from $1.0 million, but the segment remained loss-making.
- Consolidated purchased transportation expense increased 17.7%, faster than revenue, and rose to 43.2% of revenue from 41.8%. Insurance and claims expense increased 27.3%, including higher vehicle accident and cargo claims.
- Net fuel surcharge revenue increased 16.4%, benefiting revenue and results amid higher fuel prices and increased shipping activity. The filing does not quantify the net earnings impact separately.
- Capital expenditures rose to $13.1 million, mainly for replacement vehicles, trailers and equipment.
Liquidity, outlook and risks
In February 2012, the company entered a five-year, $150 million senior credit facility maturing in February 2017. At March 31, $9.3 million of capacity supported letters of credit and $140.7 million remained available. Borrowings bear interest at LIBOR plus 1.1% based on leverage covenants; the stated rate was 1.4% at quarter-end. The facility is unsecured. Management said cash, expected operating cash flow and available borrowing capacity should meet anticipated needs for at least the next 12 months.
The company provided no quantified earnings or revenue guidance. It noted quarterly seasonality and cautioned that Q1 results are not necessarily indicative of full-year results. Management expects regular quarterly dividends to continue, subject to board approval; the Q1 dividend was $0.07 per share. There were 815,059 shares remaining authorized for repurchase under the existing plan.
Key risks and contingencies include freight volumes and pricing, competition, fuel prices, customer credit and concentration, availability of owner-operators, employee and health costs, and transportation claims. Four customers accounted for approximately 73.3% of FASI revenue. Management said FASI’s goodwill valuation depends on projected performance and that delayed growth or diversification could result in impairment; no goodwill impairment was recorded in the quarter. Routine litigation was not expected to have a material adverse effect, but management could not estimate the range of reasonably possible additional self-insurance losses. The company’s forward-looking statements are subject to these and other risks.
Important facts for investors to verify
- Whether Forward Air’s revenue and margin growth can persist as purchased transportation costs and insurance claims rise.
- FASI’s path to sustained profitability, diversification of its customer base and support for its $5.4 million goodwill balance.
- Whether customer concentration at FASI and cargo, vehicle and self-insurance claims change materially.
- How the higher capital spending affects cash generation and replacement-vehicle capacity over the remainder of 2012.
- Future use of the credit facility, share repurchases and dividends, each subject to the facility terms or board approval as applicable.