Forward Air Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Forward Air is an asset-light freight and logistics company with Expedited Freight and Intermodal segments. Unless noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $362.2 | $305.6 | +18.5% |
| Income from continuing operations | $22.7 | $15.8 | +44.1% |
| Net income from continuing operations | $16.7 | $11.4 | +46.4% |
| Net income, including discontinued operations | $11.2 | $8.4 | +33.5% |
| Diluted EPS, continuing operations | $0.60 | $0.41 | — |
| Diluted EPS, total | $0.40 | $0.30 | — |
| Operating cash flow, continuing operations | $16.9 | $30.8 | Down $13.9 |
| Capital expenditures | $2.7 | $2.7 | — |
Operating margin was approximately 6.3%, compared with 5.2% a year earlier; continuing-operations net margin was approximately 4.6%, versus 3.7%. The effective tax rate on continuing operations was 22.5%, compared with 23.5%.
Segments and year-over-year drivers
- Expedited Freight: Revenue rose 19.9% to $304.2 million; operating income increased 61.6% to $24.5 million, and operating margin improved to 8.1% from 6.0%. Network tonnage rose 14.3%, shipments rose 15.9%, and revenue per hundredweight increased 1.5%. Final Mile revenue increased 30.2%, reflecting organic growth and the CLW acquisition.
- Intermodal: Revenue increased 11.5% to $58.5 million; operating income grew 21.4% to $4.5 million, with margin rising to 7.7% from 7.1%. Drayage shipments increased 9.0%. The February Proficient Transport acquisition contributed to the period’s results.
- Consolidated revenue growth was led by Expedited Freight. Purchased transportation rose 22.6% overall, faster than revenue, while total operating expenses increased 17.1%. Management attributed the growth in operating income mainly to higher freight volumes, improved revenue per hundredweight, and operating efficiencies.
Cash, debt and liquidity
- Cash and cash equivalents were $24.4 million at March 31, 2021, down from $40.3 million at year-end. Current assets were $248.0 million and current liabilities $169.1 million.
- Borrowings under the revolving credit facility were $112.5 million; $94.2 million of capacity remained available after $18.3 million of letters of credit. The facility matures September 29, 2022. The company reported compliance with its financial covenants. It borrowed a further $20 million in April 2021.
- Continuing operating cash flow was $16.9 million, versus $30.8 million. The company cited working-capital movements, particularly a $13.3 million reimbursement receivable under the Pool transition-services agreement. Continuing investing cash outflow was $17.0 million, including the $15.0 million Proficient acquisition. Continuing financing cash outflow was $15.7 million, including $10.0 million of share repurchases and $5.8 million of dividends.
- The filing states management believes cash, operating cash generation and available borrowing capacity will be sufficient for foreseeable working-capital, capital expenditure and debt-service needs.
Significant events, outlook and risks
- Pool divestiture: The company completed the sale on February 12, 2021, receiving $8.0 million cash and potential earn-out payments of up to $12.0 million tied to performance. The earn-out’s preliminary sale-date fair value was $7.0 million. The sale resulted in a $2.9 million loss; discontinued operations reported a $5.5 million after-tax loss for the quarter, versus $3.0 million in Q1 2020. The earn-out remains performance-dependent and subject to valuation uncertainty.
- Growth investments: Proficient Transport was acquired for $15.0 million plus a potential earn-out of up to $2.0 million. On April 28, the company agreed to acquire J&P Hall Express Delivery for $7.4 million. Management describes acquisitions and geographic expansion as part of its growth strategy.
- Costs and unusual items: Other operating expenses included $7.0 million of increased professional fees related to cybersecurity and shareholder engagement, partly offset by favorable self-insurance reserve changes. Management noted higher purchased-transportation costs and vehicle insurance premiums.
- COVID-19 and other risks: Management said operations had returned to pre-COVID levels but noted continued uncertainty around the pandemic, the economy and customer and supplier conditions. Disclosed risks include freight volumes and pricing, carrier availability, customer credit, competition, acquisition integration, fuel costs, information systems, insurance claims and liquidity conditions. The company reported no material change in market-risk exposure and no material pending legal matter identified in the filing.
- Guidance: The filing does not provide specific numerical earnings or revenue guidance. Management’s outlook is qualitative: it expects liquidity to be adequate and intends to pursue growth through acquisitions, greenfield expansion and service development, subject to the stated risks.
Important facts for investors to verify
- Whether freight volumes, pricing and Expedited Freight margins can be sustained as purchased-transportation costs and insurance premiums change.
- Collection timing and full recoverability of the $13.3 million Pool-related reimbursement receivable, due under the transition-services agreement.
- Actual Pool earn-out performance and payments, and whether the recorded earn-out valuation changes.
- Integration, purchase accounting and performance of Proficient Transport and the proposed J&P Hall acquisition.
- Revolving-credit-facility availability, covenant compliance and refinancing plans ahead of its September 2022 maturity.
- Potential variability in self-insurance reserves; management says estimates could change materially in the near term, although it cannot estimate a reasonably possible loss range.