Forward Air Corporation — FY2020 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2020; quarterly figures below refer to Q4 2020. Forward Air is an asset-light freight and logistics provider operating in the U.S. and Canada. Continuing operations comprise Expedited Freight (LTL, final mile and truckload) and Intermodal (container drayage and related services). Pool Distribution was classified as a discontinued operation and was sold on February 12, 2021.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Operating revenue | $1,269.6 million | $1,215.2 million |
| Income from continuing operations | $73.9 million | $112.4 million |
| Operating margin | 5.8% | 9.3% |
| Net income from continuing operations | $52.8 million | $82.3 million |
| Net income, including discontinued operation | $23.7 million | $87.1 million |
| Diluted EPS, continuing operations | $1.89 | $2.87 |
| Diluted EPS, total | $0.84 | $3.04 |
| Continuing operating cash flow | $96.1 million | $145.5 million |
| Cash and cash equivalents, year-end | $40.3 million | $64.7 million |
| Revolver borrowings, year-end | $112.5 million | $67.5 million |
Q4 2020 revenue was $350.3 million and continuing-operations net income was $15.1 million. Total Q4 net loss was $4.4 million, largely reflecting the Pool discontinued-operation loss.
At year-end, the company reported $94.2 million of available revolving-credit capacity after borrowings and letters of credit. It was in compliance with facility covenants. Long-term debt, net of current portion and issuance costs, was $112.4 million. Total operating lease obligations were $149.4 million; finance lease obligations were $6.8 million. The company declared $0.75 per share in dividends for FY2020.
Material changes versus FY2019
- Revenue grew 4.5%, mainly from acquisitions and final-mile expansion: Expedited Freight revenue rose 7.1% to $1,072.3 million, while Intermodal revenue fell 8.3% to $199.6 million.
- Operating income from continuing operations fell 34.3%, and operating margin declined 3.5 percentage points. Expedited Freight operating income fell 31.2% to $71.3 million; Intermodal operating income fell 30.8% to $16.4 million.
- COVID-19 reduced volumes across segments, with the sharpest disruption early in the year; management said volumes returned to normalized levels by Q3. In Expedited Freight, LTL tonnage declined 4.4%, while final-mile revenue more than doubled, primarily reflecting FSA and Linn Star acquisitions.
- Continuing operating cash flow declined $49.4 million. Investing cash use increased to $81.5 million, including $63.7 million for acquisitions and $20.3 million of net capital expenditures. The company repurchased $45.2 million of stock in 2020.
- Net income fell more sharply than continuing income because discontinued operations recorded a $29.0 million after-tax loss, including a $28.4 million non-cash Pool impairment.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no specific financial guidance. Management said it believed capital and liquidity were sufficient for the short and long term, while cautioning that COVID-19’s effects in 2021 remained uncertain. Strategy emphasizes organic expansion and acquisitions, particularly in final mile and Intermodal.
- Cybersecurity incident: A ransomware incident detected December 15, 2020 disrupted operations and delayed customer service; normal operations resumed within several days, but the event reduced Q4 revenue and caused inefficiencies. The company recorded $1.6 million of related 2020 expense and expected additional, not significant, costs in 2021.
- Pool sale: Sold for $8 million upfront plus up to $12 million contingent on 2021 EBITDA. The $28.4 million impairment included $5.4 million of goodwill impairment and a $23.0 million valuation allowance on held-for-sale assets.
- Acquisitions: Linn Star was acquired for approximately $57.2 million in January 2020; CLW for $5.5 million and Value Logistics for $2.0 million in October. A February 2021 agreement to acquire Proficient Transport for $15 million plus a potential $2 million earn-out was disclosed as a subsequent event.
- Key risks: Exposure to economic and freight-volume cycles, competition and pricing pressure, reliance on major customers and third-party capacity providers, independent-contractor classification rules, fuel prices, cybersecurity, and self-insured claims. One Expedited Freight customer represented more than 10% of consolidated revenue; the top ten customers represented approximately 39% of consolidated revenue.
- Claims and controls: Self-insurance reserves were $72.7 million at year-end, up from $66.2 million; estimates are actuarial and subject to uncertainty. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether post-pandemic freight volumes, pricing and margins recover, and whether acquired final-mile operations deliver expected integration benefits.
- The continuing effects, remediation costs and customer consequences of the ransomware incident.
- Pool sale proceeds actually received and whether the contingent earn-out is achieved.
- Debt, revolver availability, covenant headroom and sensitivity to variable interest rates; management estimated a 150-basis-point rate increase would add about $1.7 million of annual interest expense.
- Changes in self-insurance reserves, claim development and major-customer concentration.
- Whether the announced Proficient Transport acquisition closes on the disclosed terms and how it affects liquidity and results.