Forward Air Corporation Reports Fourth Quarter 2017 Results and Quarterly Cash Dividend

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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 fourth quarter and year ended December 31, 2017.

Operating revenue for the quarter ended December 31, 2017 increased 15.6% to $306.1 million from $264.8 million for the same quarter in 2016. Income from operations was $28.8 million, compared to $28.2 million in the prior year quarter. Net income during the period was $35.4 million compared to $12.7 million in the fourth quarter of 2016. Net income per diluted share for the fourth quarter of 2017 was $1.18 compared to $0.42 in the prior year quarter. Adjusted to exclude the $0.16 per share impact of the second quarter 2016 TQI impairment on income taxes, prior year quarter adjusted earnings per share was $0.58.

Bruce A. Campbell, Chairman, President, and CEO, commenting on fourth quarter results said, “Our business units had mixed results during an operationally challenging fourth quarter. Expedited LTL managed its seasonally busy quarter amid a tight Truckload market to deliver strong performance despite a higher use of brokered transportation. Truckload Premium Services also faced a higher use of brokered transportation as it began adjusting to market rates while honoring its committed customer contracts. Our Intermodal group showed good growth while completing the integration of Atlantic and Kansas City Logistics. Pool Distribution managed its peak quarter to generate revenue growth but faced higher variable costs in accommodating this volume, along with an equipment disposal charge.”

In closing Mr. Campbell said, “During 2017, our revenues exceeded $1 billion for the first time in Forward Air’s history. As we end the year, I would like to thank all of our employees and independent contractors for their hard work in helping us achieve this milestone. As we enter 2018 we are well positioned to continue Forward Air’s growth by providing our customers with value added freight and logistics solutions.”

Commenting on the Company’s fourth quarter results, Michael J. Morris, Senior Vice President and CFO, said, “Our fourth quarter net income per diluted share reflects a $0.53 benefit related to the fourth quarter enactment of the Tax Cuts and Jobs Act (“TCJA”). When excluding this TCJA impact, our net income per diluted share would have been $0.65, exceeding our $0.60-$0.64 guidance range.” Regarding the Company’s first quarter 2018 guidance, Mr. Morris said, “We expect first quarter year-on-year revenue growth to be 19% to 23%. This revenue outlook contemplates our 2018 implementation of ASC 606, Revenue from Contracts with Customers, which now requires that we report fuel surcharge revenue on a gross basis. As such, our growth outlook reflects a comparison to our first quarter 2017 revenue which reported fuel surcharge revenue on a net basis. If this prior year period was adjusted to reflect fuel surcharge revenue on a gross basis, we expect our year-on-year revenue growth to be 12% to 16%. We expect net income per diluted share to be between $0.55 and $0.59 in the first quarter of 2018, compared to $0.47 in the prior year quarter.”

A tabular reconciliation of non-GAAP financial measures to reported results prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) is contained in the financial summary statements attached to this press release.

On February 6, 2018, our Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock. The dividend is payable to shareholders of record at the close of business on March 8, 2018, and is expected to be paid on March 23, 2018.

This quarterly dividend is pursuant to a cash dividend policy approved by the Board of Directors, which anticipates a total annual dividend of $0.60 per share of common stock, payable in quarterly increments of $0.15 per share of common stock. The actual declaration of future cash dividends, and the establishment of record and payment dates, is subject to final determination by the Board of Directors each quarter after its review of the Company's financial performance.

Review of Financial Results

Forward Air will hold a conference call to discuss fourth quarter 2017 results on Thursday, February 8, 2018 at 10:00 a.m. EST. The Company's conference call will be available online at www.forwardaircorp.com or by dialing (800) 230-1074. A replay of the conference call will be available at www.forwardaircorp.com beginning shortly after the completion of the live call.

About Forward Air Corporation

Forward Air keeps your business moving forward by providing services within four business segments: Expedited LTL (provides expedited regional, inter-regional and national LTL services, including local pick-up and delivery, shipment consolidation/deconsolidation, warehousing, and customs brokerage by utilizing a comprehensive national network of terminals); Truckload Premium Services (provides expedited truckload brokerage, dedicated fleet services, as well as high-security and temperature-controlled logistics services); Intermodal (provides first-and last-mile high-value drayage services both to and from seaports and railheads, dedicated contract and Container Freight Station warehouse and handling services); and Pool Distribution (provides high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region). For more information, visit our website at www.forwardaircorp.com.

 
Forward Air Corporation
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
       
Three months ended Year ended

December 31,
2017

    December 31,
2016 		December 31,
2017 		    December 31,
2016
Operating revenue:
Expedited LTL $ 171,208 $ 147,368 $ 619,779 $ 570,778
Truckload Premium Services 46,408 44,003 179,320 164,272
Pool Distribution 50,383 47,507 164,221 148,661
Intermodal 43,054 27,279 148,907 103,671
Eliminations and other operations (4,937 ) (1,364 ) (11,411 ) (4,852 )
Operating revenue 306,116 264,793 1,100,816 982,530
 
Operating expenses:
Purchased transportation 136,150 112,572 478,167 413,355
Salaries, wages and employee benefits 73,457 66,145 264,739 242,002
Operating leases 16,594 15,808 63,799 60,492
Depreciation and amortization 10,477 9,801 41,055 38,210
Insurance and claims 8,199 6,180 29,578 25,392
Fuel expense 5,094 3,857 16,542 13,233
Other operating expenses 27,369 22,207 98,264 87,425
Impairment of goodwill, intangibles and other assets —   —   —   42,442  
Total operating expenses 277,340   236,570   992,144   922,551  
Operating income (loss):
Expedited LTL 23,546 20,492 88,142 83,518
Truckload Premium Services (451 ) 1,273 3,248 (35,405 )
Pool Distribution 2,706 3,824 6,378 3,633
Intermodal 3,540 2,786 12,673 10,956
Other operations (565 ) (152 ) (1,769 ) (2,723 )
Income from operations 28,776 28,223 108,672 59,979
 
Other income (expense):
Interest expense (403 ) (366 ) (1,209 ) (1,597 )
Other, net —   152   (11 ) 4  
Total other income (expense) (403 ) (214 ) (1,220 ) (1,593 )
Income before income taxes 28,373 28,009 107,452 58,386
Income tax (benefit) expense (7,000 ) 15,303   20,131   30,716  
Net income and comprehensive income $ 35,373   $ 12,706   $ 87,321   $ 27,670  
 
Net income per share:
Basic $ 1.19   $ 0.42   $ 2.90   $ 0.91  
Diluted $ 1.18   $ 0.42   $ 2.89   $ 0.90  
       
Dividends per share: $ 0.15   $ 0.15   $ 0.60   $ 0.51  
 
 
Expedited LTL Segment Information
(In millions)
(Unaudited)
         
Three months ended
December 31, Percent of December 31, Percent of Percent
2017   Revenue 2016   Revenue Change Change
Operating revenue $ 171.2 100.0 % $ 147.4 100.0 % $ 23.8 16.1 %
 
Operating expenses:
Purchased transportation 74.4 43.4 59.6 40.4 14.8 24.8
Salaries, wages and employee benefits 38.9 22.7 36.4 24.7 2.5 6.9
Operating leases 9.1 5.3 8.9 6.1 0.2 2.2
Depreciation and amortization 5.6 3.3 5.6 3.8 — —
Insurance and claims 5.1 3.0 3.1 2.1 2.0 64.5
Fuel expense 1.0 0.6 0.9 0.6 0.1 11.1
Other operating expenses 13.5     7.9   12.4     8.4   1.1   8.9  
Total operating expenses 147.6     86.2   126.9     86.1   20.7   16.3  
Income from operations $ 23.6     13.8 % $ 20.5     13.9 % $ 3.1   15.1 %
 
 
Expedited LTL Operating Statistics
           
Three months ended
December 31, December 31, Percent
2017 2016 Change
 
Operating ratio 86.2 % 86.1 % 0.1 %
 
Business days 63.0 63.0 —
Business weeks 12.6 12.6 —
 
Expedited LTL:
Tonnage

Total pounds 1

684,828 612,098 11.9

Average weekly pounds 1

54,351 48,579 11.9
 
Linehaul shipments
Total linehaul 1,143,328 1,006,256 13.6
Average weekly 90,740 79,862 13.6
 
Forward Air Complete shipments 246,523 202,452 21.8
As a percentage of linehaul shipments 21.6 % 20.1 % 7.5
 
Average linehaul shipment size 599 608 (1.5 )
 

Revenue per pound 2

Linehaul yield $ 17.07 $ 17.40 (1.5 )
Fuel surcharge 1.30 1.02 1.3
Forward Air Complete 3.76   3.45   1.4  
Total Expedited LTL yield $ 22.13   $ 21.87   1.2 %
 

1 - In thousands

2 - In dollars per hundred pound; percentage change is expressed as a percent of total yield.
 
 
Truckload Premium Services Segment Information
(In millions)
(Unaudited)
                       
Three months ended
December 31, Percent of December 31, Percent of Percent
2017     Revenue 2016     Revenue   Change Change
Operating revenue $ 46.4 100.0 % $ 44.0 100.0 % $ 2.4 5.5 %
 
Operating expenses:
Purchased transportation 35.4 76.3 31.7 72.1 3.7 11.7
Salaries, wages and employee benefits 5.2 11.2 4.9 11.1 0.3 6.1
Operating leases 0.4 0.9 0.1 0.2 0.3 300.0
Depreciation and amortization 1.6 3.4 1.5 3.4 0.1 6.7
Insurance and claims 1.2 2.6 1.9 4.3 (0.7 ) (36.8 )
Fuel expense 1.0 2.2 0.7 1.6 0.3 42.9
Other operating expenses 2.1       4.5   1.9       4.3     0.2   10.5  
Total operating expenses 46.9       101.1   42.7       97.0     4.2   9.8  

Results from operations

$ (0.5 )     (1.1 )% $ 1.3       3.0 % $ (1.8 ) (138.5 )%
 
 
Truckload Premium Services Operating Statistics
     
Three months ended
December 31,     December 31,     Percent
2017 2016 Change
 

Company driver 1

2,115 1,665 27.0 %
Owner operator 1 9,405 12,702 (26.0 )
Third party 1 13,193   9,455   39.5  
Total Miles 24,713 23,822 3.7
 
Revenue per mile $ 1.81 $ 1.80 0.6
 
Cost per mile $ 1.51 $ 1.42 6.3 %
 

1 - In thousands

 
 
Pool Distribution Segment Information
(In millions)
(Unaudited)
                       
Three months ended
December 31, Percent of December 31, Percent of Percent
2017     Revenue 2016     Revenue Change Change
Operating revenue $ 50.4 100.0 % $ 47.5 100.0 % $ 2.9 6.1 %
 
Operating expenses:
Purchased transportation 13.3 26.4 12.5 26.3 0.8 6.4
Salaries, wages and employee benefits 18.9 37.4 17.8 37.5 1.1 6.2
Operating leases 3.8 7.5 3.5 7.4 0.3 8.6
Depreciation and amortization 1.7 3.4 1.5 3.1 0.2 13.3
Insurance and claims 1.5 3.0 1.2 2.5 0.3 25.0
Fuel expense 1.8 3.6 1.6 3.4 0.2 12.5
Other operating expenses 6.7       13.3   5.6       11.8   1.1   19.6  
Total operating expenses 47.7       94.6   43.7       92.0   4.0   9.2  
Income from operations $ 2.7       5.4 % $ 3.8       8.0 % $ (1.1 ) (28.9 )%
 
 
Intermodal Segment Information
(In millions)
(Unaudited)
                       
Three months ended
December 31, Percent of December 31, Percent of Percent
2017     Revenue 2016     Revenue Change Change
Operating revenue $ 43.1 100.0 % $ 27.3 100.0 % $ 15.8 57.9 %
 
Operating expenses:
Purchased transportation 17.4 40.4 9.7 35.5 7.7 79.4
Salaries, wages and employee benefits 9.7 22.5 6.6 24.2 3.1 47.0
Operating leases 3.5 8.1 2.8 10.2 0.7 25.0
Depreciation and amortization 1.6 3.7 1.1 4.0 0.5 45.5
Insurance and claims 0.9 2.1 0.8 2.9 0.1 12.5
Fuel expense 1.2 2.8 0.7 2.6 0.5 71.4
Other operating expenses 5.3       12.3   2.8       10.3   2.5   89.3  
Total operating expenses 39.6       91.9   24.5       89.7   15.1   61.6  
Income from operations $ 3.5       8.1 % $ 2.8       10.3 % $ 0.7   25.0 %
 
 
Forward Air Corporation
Consolidated Balance Sheets
(In thousands)
(Unaudited)
    December 31,
2017 		    December 31,

2016 (a)

Assets
Current assets:
Cash and cash equivalents $ 3,893 $ 8,511
Accounts receivable, net 143,041 116,602
Other current assets 15,808   11,157
Total current assets 162,742 136,270
 
Property and equipment 399,235 379,021
Less accumulated depreciation and amortization 193,123   178,816
Net property and equipment 206,112 200,205
Goodwill and other acquired intangibles:
Goodwill 191,671 184,675
Other acquired intangibles, net of accumulated amortization 111,247   106,650
Total net goodwill and other acquired intangibles 302,918 291,325
Other assets 15,944   13,491
Total assets $ 687,716   $ 641,291
 
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 24,704 $ 18,012
Accrued expenses 35,069 31,903
Current portion of debt and capital lease obligations 359   28,012
Total current liabilities 60,132 77,927
 
Debt and capital lease obligations, less current portion 40,588 725
Other long-term liabilities 24,104 21,699
Deferred income taxes 29,403 41,871
 
Shareholders’ equity:
Common stock 295 301
Additional paid-in capital 195,346 179,512
Retained earnings 337,848   319,256
Total shareholders’ equity 533,489   499,069
Total liabilities and shareholders’ equity $ 687,716   $ 641,291
 
(a) Taken from audited financial statements, which are not presented in their entirety.
 
 
Forward Air Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
       
Three months ended
December 31,
2017 		December 31,
2016
Operating activities:
Net income $ 35,373 $ 12,706
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 10,477 9,801
Share-based compensation 2,138 2,130
Loss on disposal of property and equipment 580 90
Provision for loss (recovery) on receivables 26 (10 )
Provision for revenue adjustments 924 450
Deferred income taxes (12,600 ) 2,864
Tax benefit for stock options exercised — (1,595 )
Changes in operating assets and liabilities
Accounts receivable (11,891 ) (1,715 )
Prepaid expenses and other assets (2,599 ) 7,377
Accounts payable and accrued expenses 3,225   3,644  
Net cash provided by operating activities 25,653 35,742
 
Investing activities:
Proceeds from disposal of property and equipment 943 134
Purchases of property and equipment (24,655 ) (13,461 )
Acquisition of business (640 ) —
Other (150 ) 337  
Net cash used in investing activities (24,502 ) (12,990 )
 
Financing activities:
Payments of debt and capital lease obligations (75 ) (13,943 )
Proceeds from exercise of stock options 1,630 1,107
Payments of cash dividends (4,468 ) (4,542 )
Repurchase of common stock (repurchase program) (7,000 ) (9,997 )
Common stock issued under employee stock purchase plan 232 227
Tax benefit for stock options exercised —   1,595  
Net cash used in by financing activities (9,681 ) (25,553 )
Net decrease in cash (8,530 ) (2,801 )
Cash at beginning of period 12,423   11,312  
Cash at end of period $ 3,893   $ 8,511  
 
 
Forward Air Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
    Year ended
December 31,
2017 		    December 31,
2016
Operating activities:
Net income $ 87,321 $ 27,670
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 41,055 38,210
Impairment of goodwill, intangible and other assets — 42,442
Share-based compensation 8,103 8,334
Loss on disposal of property and equipment 1,281 291
Provision for loss on receivables 1,814 258
Provision for revenue adjustments 3,055 2,020
Deferred income taxes (12,468 ) 3,525
Tax benefit for stock options exercised — (1,732 )
Changes in operating assets and liabilities, net of acquisition of business
Accounts receivable (31,308 ) (9,715 )
Prepaid expenses and other assets (4,434 ) 283
Accounts payable and accrued expenses 8,945   18,764  
Net cash provided by operating activities 103,364 130,350
 
Investing activities:
Proceeds from disposal of property and equipment 2,440 1,929
Purchases of property and equipment (38,265 ) (42,186 )
Acquisition of business, net of cash acquired (23,140 ) (11,800 )
Other (223 ) (336 )
Net cash used in investing activities (59,188 ) (52,393 )
 
Financing activities:
Payments of debt and capital lease obligations (42,790 ) (55,768 )
Proceeds from senior credit facility 55,000 —
Proceeds from exercise of stock options 7,272 8,148
Payments of cash dividends (18,052 ) (15,529 )
Purchase of common stock under repurchase program (48,983 ) (39,983 )
Common stock issued under employee stock purchase plan 458 442
Cash settlement of share-based awards for minimum tax withholdings (1,699 ) (1,800 )
Tax benefit for stock options exercised —   1,732  
Net cash (used in) provided by financing activities (48,794 ) (102,758 )
Net decrease in cash (4,618 ) (24,801 )
Cash at beginning of year 8,511   33,312  
Cash at end of year $ 3,893   $ 8,511  
 

Forward Air Corporation Reconciliation of U.S. GAAP and Non-GAAP Financial Measures

The Company reports its financial results in accordance with GAAP (also referred to herein as “reported”). However, the Company also uses “non-GAAP financial measures” that are derived on the basis of methodologies other than in accordance with GAAP. Specifically, the Company believes that meaningful analysis of its financial performance in 2017 and 2016 requires an understanding of the factors underlying that performance, including an understanding of items that are non-operational. Management uses these non-GAAP financial measures in making financial, operating, compensation and planning decisions and in evaluating the Company’s performance.

This press release contains the following non-GAAP financial measures: adjusted income from operations, adjusted net income, adjusted earnings per diluted share, adjusted effective income tax rate and guidance with respect to adjusted net income per diluted share. These measures exclude intangible asset impairment costs and intangible asset impairment tax ramifications related to TQI for the three months ended December 31, 2016. The Company believes that excluding these items will assist investors in understanding our core operating performance and allow for more accurate comparisons of results.

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial information does not represent a comprehensive basis of accounting. As required by the Securities and Exchange Act of 1933 and the rules and regulations promulgated thereunder, the tables below present, for the periods indicated, a reconciliation of our presented non-GAAP financial measures to the most directly comparable GAAP financial measures.

 
Forward Air Corporation
Reconciliation to U.S. GAAP
(In millions, except per share data)
(Unaudited)
                             
Three months ended December 31, 2016

Income
before
taxes

   

Income
taxes

   

Effective
tax rate

   

Net
Income

   

Diluted
earnings
per share

Reported (GAAP) $ 28.0     $ 15.3     54.6 %     $ 12.7     $ 0.42
Items impacting comparability:
Impact of TQI impairment on income taxes —       (5.0 )     17.8 %     5.0       0.16
After considering items (Non-GAAP) $ 28.0 $ 10.3 36.8 % $ 17.7 $ 0.58
 

The following table summarizes supplemental full year 2018 guidance information that management believes to be useful.

 
Forward Air Corporation
Additional Guidance Data
(In thousands, except per share data)
(Unaudited)
   
Three months ended
Actual     December 31, 2017
Net income $ 35,373
Income allocated to participating securities (284 )
Numerator for diluted income per share - net income $ 35,089  
 
Fully diluted share count 29,635
Diluted earnings per share $ 1.18
 
 
Projected     Full year 2018
Projected tax rate 25.0 %
 
Projected year end fully diluted share count (before consideration of future share repurchases) 28,800
 
Projected capital expenditures, net $ 46,000
 

Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements included in this press release relate to expected first quarter 2018 operating results, such as revenue growth and earnings, and guidance relating to income per diluted share, adjusted income per diluted share and adjusted effective tax rate for the second quarter.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: our inability to maintain our historical growth rate because of a decreased volume of freight moving through our network or decreased average revenue per pound of freight moving through our network, tax matters, the availability and compensation of qualified independent owner-operators and freight handlers needed to serve our transportation needs, our inability to successfully integrate acquisitions and the risks described in our Annual Report on Form 10-K for the year ended December 31, 2016.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Forward Air Corporation
Michael J. Morris, 404-362-8933
mmorris@forwardair.com

Source: Forward Air Corporation

Released February 7, 2018