Forward Air Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited; amounts below are in U.S. dollars. The company is an asset-light freight and logistics provider operating Expedited Freight and Intermodal segments in the U.S. and Canada.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $510.0m | $419.6m | $1,492.2m | $1,202.5m |
| Operating income | $71.7m | $42.5m | $204.6m | $107.3m |
| Net income from continuing operations | $52.1m | $30.5m | $150.2m | $77.9m |
| Continuing-operations diluted EPS | $1.93 | $1.12 | $5.53 | $2.83 |
| Operating margin | 14.0% | 10.1% | 13.7% | 8.9% |
Revenue increased 21.5% in Q3 and 24.1% for the nine-month period; operating income rose 68.7% and 90.6%, respectively. Continuing-operations net income rose 70.9% in Q3 and 92.9% year to date. Q3 2021 included a $7.0m after-tax loss from discontinued operations; the nine-month 2021 loss was $12.5m. Pool was sold in February 2021, so reported total net income comparisons also reflect that prior-period item.
Segments: Q3 Expedited Freight revenue was $395.6m, up 15.8%, with operating income of $56.3m and a 14.2% margin versus 10.1%. Intermodal revenue was $114.4m, up 46.4%, with operating income of $16.6m and a 14.5% margin versus 11.1%. Intermodal growth reflected pricing, accessorial revenue and acquisitions; drayage shipments declined 2.8%, while revenue per shipment increased 62.1%.
Cash flow and investment: Nine-month operating cash flow was $196.8m versus $82.8m. Investing used $64.4m, including $25.4m of capital expenditures and $40.4m for the Edgmon acquisition. Financing used $122.9m, including $48.6m of credit-facility repayments, $47.8m of share repurchases and $19.5m of dividends. Cash rose to $46.8m from $37.3m at year-end 2021.
Liquidity and debt: Current assets were $313.0m and current liabilities $179.6m at September 30, 2022; working capital was $133.4m. Credit-facility borrowings were $108.9m, down from $157.5m at December 31, 2021; finance lease obligations totaled $19.0m. The company reported $280.0m of available borrowing capacity and compliance with facility covenants. The facility matures in 2026; the borrowing rate was 3.33% at quarter-end versus 1.35% a year earlier. The filing reports $1.5m of current long-term debt and $7.9m of current debt and finance-lease obligations combined.
Q3 interest expense increased to $1.5m from $1.0m, primarily due to higher variable rates. The nine-month effective tax rate was 25.3%, versus 25.0%.
Material changes and management commentary
- Expedited Freight benefited from higher tonnage and yield excluding fuel; Q3 network revenue per hundredweight excluding fuel rose 7.0%. Fuel surcharge revenue also increased materially as fuel prices rose.
- Intermodal growth included the BarOle and Edgmon acquisitions. Edgmon, acquired in May 2022 for a preliminary $40.4m, expanded the company into the Seattle/Tacoma market; purchase-price allocations remain preliminary.
- Operating costs increased, including purchased transportation, wages, leases, insurance and other expenses. Management cited labor shortages, competition for owner-operators, inflation, maintenance, and higher terminal and accessorial-related costs.
- Fuel surcharges have mitigated fuel-price movements, but management cautioned they may not fully offset changes or may increase revenue more than expected. Fuel surcharge revenue was 17.7% of Q3 revenue versus 11.6% a year earlier.
- Management stated that cash, operating cash generation and facility availability should support working capital, capital expenditures and debt service for the foreseeable future. The company expects to maintain covenant compliance. No quantified earnings or revenue guidance is provided in the filing text.
Risks, contingencies and unusual items
- Key risks include economic downturns, inflation and higher interest rates, reduced freight volumes or pricing, customer creditworthiness, fuel volatility, labor and carrier availability, competition, customer concentration, acquisition integration, and regulatory and environmental matters.
- The company retains significant portions of vehicle-liability and workers’ compensation risks. It considers recorded reserves sufficient, but notes that claims estimates are inherently uncertain and reserves could change materially in the near term; it cannot estimate a reasonably possible additional-loss range.
- Routine legal claims include vehicle liability, property damage and workers’ compensation. Management does not expect their resolution, considering existing reserves, to have a material adverse effect.
- A new ERP system was implemented during Q3, replacing legacy transaction systems. Management reported disclosure controls effective, while noting that related internal controls will continue to be evaluated.
- Goodwill was $288.5m; management reported no impairment indicators during Q3. Acquisition goodwill and intangible-asset valuations remain subject to finalization.
Investor facts to verify
- How much of revenue and margin growth is supported by underlying volume and pricing, versus fuel surcharges and acquisitions?
- Whether labor, purchased-capacity, maintenance and insurance costs continue to pressure segment margins.
- Edgmon and BarOle integration performance, and final purchase-price allocations and earn-out exposure.
- Claims-reserve development, particularly vehicle liability, and any impact on future insurance expense or cash flow.
- ERP control effectiveness in subsequent periods, alongside covenant headroom, borrowing costs and the company’s capital-allocation pace.