Forward Air Corporation Reports Third Quarter 2015 Results

Towne Air Integration Substantially Complete

GREENEVILLE, Tenn.--(BUSINESS WIRE)-- Forward Air Corporation (NASDAQ:FWRD) today reported operating revenue, income from operations, net income and diluted earnings per share for the three and nine months ended September 30, 2015.

Operating revenue for the quarter ended September 30, 2015 increased 22.6% to $247.1 million from $201.5 million for the same quarter in 2014. Income from operations was $24.6 million, compared to $26.9 million in the prior-year quarter. Net income during the period was $15.7 million compared to $16.7 million in the third quarter of 2014. Net income per diluted share for the third quarter of 2015 was $0.50 compared to $0.54 in the prior-year quarter.

There are approximately $3.9 million in Towne Air related integration costs included in our third quarter 2015 results. Excluding these costs, our adjusted income from operations would have been $28.5 million, compared with $26.7 million in the prior-year quarter, adjusted net income for the period would have been $18.1 million compared to $16.7 million in the prior year quarter and our adjusted income per diluted share would have been $0.58 compared to $0.54 a year ago. A reconciliation of these adjusted amounts to the most directly comparable GAAP amounts appears at the end of this press release. On an adjusted basis this is the highest quarterly adjusted income from operations, net income and income per diluted share in the Company’s history.

Operating revenue for the nine months ended September 30, 2015 increased 24.0% to $702.7 million from $566.9 million for the same period in 2014. Income from operations was $52.7 million, compared with $70.8 million in the prior-year period. As a percent of operating revenue, income from operations was 7.5%, compared with 12.5% in the same period last year. Net income during the period was $32.3 million compared to $44.1 million in the prior-year period. Income per diluted share for the nine months ended September 30, 2015 was $1.03 compared with $1.41 in the prior-year period.

There are approximately $22.9 million in Towne Air related deal and integration costs included in our results for the nine months ended September 30, 2015. Excluding these costs, our adjusted income from operations was $75.6 million compared with $71.5 million for the same period of 2014, adjusted net income for the period was $46.3 million compared to $44.7 million in 2014, and adjusted income per diluted share was $1.49 compared to $1.43 a year ago.

Bruce A. Campbell, Chairman, President, and CEO, commenting on the third quarter said, “We are happy to report that we exited the third quarter with the integration of Towne Air Freight substantially behind us. Our yield improvement initiatives implemented in September should drive increased profitability in the fourth quarter and throughout next year. These yield improvements should drive approximately $3.0 million in increased profitability in the fourth quarter of 2015 compared to the same period of 2014. Also, during September, we made additional headcount reductions, closed duplicate facilities, reduced dock labor costs and drove more efficient network routing which should produce approximately $1.5 million in additional cost savings in the fourth quarter of 2015 compared to the same period of 2014.”

Commenting further, Mr. Campbell said, “Central States Trucking Company (CST) is our first and final mile intermodal operation and its results are reported within our Forward Air, Inc. segment. Once again, CST delivered an outstanding quarter growing revenues 37%, posting an 87.5% operating ratio and increasing earnings 44%. Also, the CST team has started some very promising green-field operations in select targeted markets and is closing in on some additional tuck-in acquisition opportunities. We continue to be pleased with not only the CST team and their operating results but also CST as an accelerated growth platform.”

Commenting on the Forward Air Solutions (Solutions) operating segment Mr. Campbell said, “Going into peak season, Solutions typically doesn’t have the opportunity to take on new business. Yet, late in the third quarter, we were awarded $4 million of new business. Also, a large competitor went out of business. As a result, we have at least $5 million of additional business that started coming on board in the third quarter. Preparing for these new volumes was costly as well as time consuming and drove our lower than expected profitability in the third quarter. On a positive note, this new business should have substantial operating leverage for Solutions as it will be layered across our existing route structures.”

Commenting on our Total Quality, Inc. (TQI) segment Mr. Campbell said, “TQI’s struggles continued into the third quarter as our quarterly revenues declined approximately 15% year over year. Recognizing our lack of top line growth and the reasons for it, we identified and hired a new leader for this business, Steve Gilmore. Steve brings a wealth of life science, cold chain and transportation experience with him. We are committed to this business and to our customers and look forward to putting TQI back on a revenue growth trajectory.”

In closing Mr. Campbell said, “Especially given the Towne integration, 2015 has been a very challenging year. More than ever, I appreciate all the hard work on the part of our employees and independent contractors. We should finally realize the full benefit of all of that hard work in the fourth quarter. We fully expect to end 2015 on a high note and continue into 2016 driving the kind of enhanced shareholder value everyone has come to expect of Forward Air.”

Commenting further on the third quarter results was Rodney Bell, Senior Vice President and CFO, “After adding back Towne-related deal costs, we posted $0.58 for the quarter against a guidance midpoint of $0.60. Not included in our guidance was the benefit of approximately $0.03 that resulted from amending prior year tax returns for a technology-related permanent tax deduction. This deduction should result in an additional $3.0 million of tax benefit in the fourth quarter as we amend additional prior year returns. In 2016 and subsequent years, we expect the full year benefit of this credit to be approximately $1.0 million.”

Continuing, Mr. Bell said, “Backing out the $0.03 tax benefit, we posted a $0.05 shortfall to the midpoint of our guidance. Approximately $0.03 and $0.01 per share of that shortfall was due to the lower than expected profitability of Solutions and TQI, respectively. Additionally, we assumed that our Towne integration cost reduction and pricing initiatives would take place earlier in the quarter. Had they taken place as modeled, we would have earned approximately $0.02 per share more on the quarter. Also, the continued decline in the benefit of net fuel surcharges (FSC) was approximately an additional $0.01 drag than we modeled in our guidance. In order to simplify analysis of the quarterly results, we have included an actual to mid-point guidance earnings per share (EPS) bridge within this release.”

Closing with comments on the Company’s fourth quarter guidance Mr. Bell said, “We anticipate our fourth quarter 2015 revenues to increase in a range of 18% to 21% over the comparable 2014 period. Without regard to additional costs of integration, the above described technology tax deduction, or additional declines in our net fuel surcharge we expect income per diluted share to be between $0.62 and $0.66 per share. This compares to $0.55 per share in the fourth quarter of 2014.”

Review of Financial Results

Forward Air will hold a conference call to discuss third quarter 2015 results on Thursday, October 22, 2015 at 9:00 a.m. EDT. The Company's conference call will be available online at www.forwardair.com or by dialing (800) 230-1093. A replay of the conference call will be available at www.forwardair.com beginning shortly after the completion of the live call.

About Forward Air Corporation

Forward Air Corporation operates three business segments: Forward Air, Forward Air Solutions and Total Quality.

Through our Forward Air segment, we provide time-definite surface transportation and related logistics services to the North American expedited ground freight market. Our licensed property broker utilizes qualified motor carriers, including our own, and other third-party transportation companies, to offer our customers local pick-up and delivery (Forward Air Complete®) and scheduled surface transportation of cargo as a cost-effective, reliable alternative to air transportation. We transport cargo that must be delivered at a specific time but is less time-sensitive than traditional air freight. This type of cargo is frequently referred to in the transportation industry as deferred air freight. We also offer our customers an array of logistics and other services including: expedited full truckload (TLX); dedicated fleets; warehousing; customs brokerage; and shipment consolidation, deconsolidation and handling. Also included in the Forward Air segment are the services performed by Central States Trucking Co. and Central States Logistics, Inc. (“CST”), which we acquired in 2014. CST provides intermodal drayage, devanning, transloading and warehousing services.

Forward Air Solutions, which we formed in July 2007, provides pool distribution services throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States. Pool distribution involves managing high-frequency, last mile handling and distribution of time-sensitive products to numerous destinations in specific geographic regions. Our primary customers for pool distribution are regional and nationwide distributors and specialty retailers, such as mall, strip mall and outlet-based retail chains.

Total Quality ("TQI"), which we acquired in March 2013, provides maximum security and temperature-controlled logistics services, primarily truckload services, to the life sciences sector (pharmaceutical and biotechnology products). In addition to core pharmaceutical services and other cold chain services, TQI provides truckload and less-than-truckload brokerage transportation services.

Forward Air Corporation Reconciliation to U.S. GAAP

The Company believes that meaningful analysis of our financial performance requires an understanding of the factors underlying that performance, including an understanding of items that are non-recurring in nature. We believe that excluding integration costs related to Towne Air from our results for the three and nine months ended September 30, 2015 will assist investors in understanding our core operating performance and allow for more accurate comparisons of results. As required by SEC rules, the tables below present, for the periods indicated, a reconciliation of our presented adjusted non-GAAP measures to the most directly comparable GAAP measures.