Forward Air Corporation (NASDAQ: FWRD) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Forward Air is an asset-light freight and logistics provider operating in the United States and Canada, with Expedited Freight and Intermodal segments. Amounts below are in millions except per-share data and percentages.
Financial performance and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $515.2 | $420.7 | $982.2 | $782.9 |
| Operating income | $75.5 | $42.1 | $132.9 | $64.8 |
| Operating margin | 14.7% | 10.0% | 13.5% | 8.3% |
| Net income | $55.4 | $30.7 | $98.1 | $41.9 |
| Diluted earnings per share | $2.04 | $1.11 | $3.61 | $1.51 |
- Revenue and earnings growth: Q2 revenue rose 22.5% and net income rose 80.7% year over year. First-half revenue increased 25.5%; net income rose 134.4%, partly reflecting the prior-year Pool discontinued-operation loss of $5.5 million.
- Segment results, Q2: Expedited Freight revenue increased 16.2% to $408.9 million and operating income increased 81.9% to $63.1 million. Intermodal revenue increased 53.9% to $106.4 million and operating income increased 81.8% to $15.2 million. Intermodal growth included the BarOle and Edgmon acquisitions.
- Cash flow, first half: Operating cash flow was $112.8 million, versus $39.7 million a year earlier. Investing cash outflow was $58.3 million, including $18.7 million of capital expenditures and $40.4 million for Edgmon. Financing cash outflow was $44.4 million, including dividends and share repurchases. Cash increased $10.1 million to $47.4 million.
- Liquidity and debt: Current assets were $315.8 million versus current liabilities of $167.5 million. Credit-facility borrowings were $149.3 million; available borrowing capacity was $280.0 million. Finance lease obligations totaled $18.3 million. The company reported compliance with its credit-facility covenants.
- Margins and costs: Improved operating margins reflected pricing, higher revenue per shipment and freight rationalization, alongside increased fuel-surcharge revenue. Purchased transportation, labor, fuel, insurance and other operating costs also rose. Q2 fuel surcharge revenue was 18.4% of operating revenue, compared with 11.6% a year earlier.
Material changes and management commentary
- Expedited Freight network tonnage rose 0.3% in Q2, while shipments fell 12.3%; weight per shipment increased 14.5%. Network revenue per hundredweight excluding fuel rose 9.9%.
- Intermodal Q2 drayage shipments declined 4.2%, while drayage revenue per shipment increased 58.4%. First-half drayage shipments decreased 3.0% and revenue per shipment increased 59.5%.
- Edgmon Trucking was acquired in May 2022 for a preliminary purchase price of $40.4 million, with a potential earn-out of up to $5.0 million. It expands Intermodal into the Seattle-Tacoma market. The earn-out valuation and acquisition purchase-price allocation were not final.
- Management said available cash, operating cash flow and credit-facility borrowings should be sufficient for working capital, capital expenditures and debt service for the foreseeable future. The filing provides no specific earnings or revenue guidance.
Risks, contingencies and unusual items
- Management cited labor shortages and inflation as increasing labor and purchased-transportation costs. Fuel prices and availability remain volatile; surcharges may not fully offset fuel-cost changes or may affect revenue unevenly.
- Economic weakness, customer creditworthiness, lower freight volumes or yields, competition, customer loss, acquisition integration, and COVID-19 developments could affect results. The company also depends on access to qualified drivers, carriers and terminal facilities.
- Other operating expenses included increased bad-debt expense. The company recorded a $0.9 million specific reserve against Pool-related reimbursement receivables; the net receivable was $0.1 million at June 30, 2022.
- Vehicle-liability claims reserves increased due to unfavorable development in historical claims. Management considers recorded reserves sufficient, but says estimates could change materially in the near term; it could not estimate a reasonably possible additional loss range. Routine litigation was not expected to have a material adverse effect, based on current information.
- The July 2022 quarterly dividend was declared at $0.24 per share. No common shares were repurchased during Q2, although 176,000 shares were repurchased in the first half for $17.8 million.
Important facts for investors to verify
- Whether pricing, freight mix and margin gains persist if shipment volumes weaken or fuel surcharges decline.
- How labor and carrier availability, wage pressure, fuel costs and bad-debt expense affect subsequent operating results.
- Final Edgmon acquisition accounting and earn-out valuation, and the performance of the expanded Intermodal footprint.
- Developments in self-insurance reserves, vehicle-liability claims and the collectability of Pool-related receivables.
- Credit-facility capacity, covenant compliance, and cash needs for acquisitions, capital spending, dividends and repurchases.