fwrd-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-22490

FORWARD AIR CORPORATION

(Exact name of registrant as specified in its charter)

Tennessee

62-1120025

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

1915 Snapps Ferry Road

Building N

Greeneville

37745

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (423) 636-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

FWRD

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of November 4, 2021 was 26,958,243.


Table of Contents

Forward Air Corporation

		Page
		Number
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – Sept ember 30, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended Se ptember 30, 2021 and 2020	4

	Condensed Consolidated Statements of Comprehensive Income - Nine Months Ended September 30, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows – Nine Months Ended Sep tember 30, 2021 and 2020	6

	Condensed Consolidated Statements of Shareholders’ Equity – Three and Nine Months Ended September 30, 2021 and 2020	7

	Notes to Condensed Consolidated Financial Statements – September 30, 2021	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

Part II.	Other Information

Item 1.	Legal Proceedings	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other	51

Item 6.	Exhibits	52

Signatures		53

Table of Contents


Part I.			Financial Information

Item 1.			Financial Statements (Unaudited).


Forward Air Corporation
Condensed Consolidated Balance Sheets
(unaudited and in thousands, except share and per share amounts)

	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	51,930	$	40,254
Accounts receivable, less allowance of $2,828 in 2021 and $2,273 in 2020	205,165		156,490
Other receivables	14,218		—
Other current assets	17,948		28,150
Current assets held for sale	—		21,002
Total current assets	289,261		245,896

Property and equipment	396,094		380,519
Less accumulated depreciation and amortization	199,875		190,652
Total property and equipment, net	196,219		189,867
Operating lease right-of-use assets	142,623		123,338

Goodwill	254,776		244,982
Other acquired intangibles, net of accumulated amortization of $103,635 in 2021 and $93,009 in 2020	142,196		145,032

Other assets	45,433		45,181
Noncurrent assets held for sale	—		53,097
Total assets	$	1,070,508	$	1,047,393

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	42,885	$	38,371
Accrued expenses	63,577		51,264
Other current liabilities	4,155		10,580
Current portion of debt and finance lease obligations	1,841		1,801
Current portion of operating lease liabilities	46,008		43,680
Current liabilities held for sale	—		25,924
Total current liabilities	158,466		171,620

Long-term debt and finance lease obligations, less current portion and debt issuance costs	161,312		117,408
Operating lease liabilities, less current portion	97,181		80,346
Other long-term liabilities	57,354		54,129
Deferred income taxes	40,659		41,986
Noncurrent liabilities held for sale	—		34,575

Shareholders’ equity:
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued or outstanding in 2021 and 2020	—		—
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 26,958,243 in 2021 and 27,316,434 in 2020	270		273
Additional paid-in capital	255,071		242,916
Retained earnings	300,195		304,140
Total shareholders’ equity	555,536		547,329
Total liabilities and shareholders’ equity	$	1,070,508	$	1,047,393

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(unaudited and in thousands, except per share amounts)

	Three Months Ended
	September 30, 2021		September 30, 2020
Operating revenues	$	419,625	$	331,997

Operating expenses:
Purchased transportation	205,474		173,054
Salaries, wages and employee benefits	84,410		66,927
Operating leases	20,536		17,327
Depreciation and amortization	9,416		9,172
Insurance and claims	9,984		8,671
Fuel expense	4,457		2,715
Other operating expenses	42,872		30,621

Total operating expenses	377,149		308,487
Income from continuing operations	42,476		23,510

Other expense:
Interest expense	(973)		(1,304)

Total other expense	(973)		(1,304)
Income before income taxes	41,503		22,206
Income tax expense	11,000		5,214
Net income from continuing operations	30,503		16,992
Loss from discontinued operation, net of tax	(6,967)		(345)
Net income and comprehensive income	$	23,536	$	16,647

Basic net income (loss) per share
Continuing operations	$	1.12	$	0.61
Discontinued operation	(0.26)		(0.01)
Net income per basic share	$	0.86	$	0.60

Diluted net income (loss) per share
Continuing operations	$	1.12	$	0.61
Discontinued operation	(0.26)		(0.01)
Net income per diluted share	$	0.86	$	0.60

Dividends per share	$	0.21	$	0.18

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(unaudited and in thousands, except per share amounts)

	Nine Months Ended
	September 30, 2021		September 30, 2020
Operating revenues	$	1,202,498	$	919,232

Operating expenses:
Purchased transportation	605,299		465,721
Salaries, wages and employee benefits	243,948		200,258
Operating leases	60,073		52,598
Depreciation and amortization	28,067		27,919
Insurance and claims	30,616		26,437
Fuel expense	12,218		9,247
Other operating expenses	114,953		83,854

Total operating expenses	1,095,174		866,034
Income from continuing operations	107,324		53,198

Other expense:
Interest expense	(3,461)		(3,355)

Total other expense	(3,461)		(3,355)
Income before income taxes	103,863		49,843
Income tax expense	25,969		12,209
Net income from continuing operations	77,894		37,634
Loss from discontinued operation, net of tax	(12,500)		(9,458)
Net income and comprehensive income	$	65,394	$	28,176

Basic net income (loss) per share
Continuing operations	$	2.84	$	1.35
Discontinued operation	(0.46)		(0.34)
Net income per basic share1	$	2.39	$	1.01

Diluted net income (loss) per share
Continuing operations	$	2.83	$	1.35
Discontinued operation	(0.46)		(0.34)
Net income per diluted share	$	2.37	$	1.01

Dividends per share	$	0.63	$	0.54

1 Rounding may impact summation of amounts.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited and in thousands)

	Nine Months Ended
	September 30, 2021		September 30, 2020

Operating activities:
Net income from continuing operations	$	77,894	$	37,634
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations
Depreciation and amortization	28,067		27,919

Change in fair value of earn-out liability	(385)		(2,209)
Share-based compensation expense	8,179		7,852
Provision for revenue adjustments	5,504		2,972
Deferred income tax (benefit) expense	(1,384)		4,317
Other	406		714
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses:
Accounts receivable	(49,086)		(20,436)
Other receivables	(14,218)		—
Other current and noncurrent assets	8,198		1,253
Accounts payable and accrued expenses	19,577		20,477
Net cash provided by operating activities of continuing operations	82,752		80,493

Investing activities:
Proceeds from sale of property and equipment	2,339		1,415
Purchases of property and equipment	(23,015)		(16,439)
Purchase of a business, net of cash acquired	(23,053)		(55,931)
Net cash used in investing activities of continuing operations	(43,729)		(70,955)

Financing activities:
Repayments of finance lease obligations	(1,445)		(529)
Proceeds from revolving credit facility	45,000		65,000
Payments on revolving credit facility	—		(20,000)
Payment of debt issuance costs	(119)		—
Payment of earn-out liability	(6,519)		(5,284)
Proceeds from issuance of common stock upon stock option exercises	3,563		1,901
Payments of dividends to shareholders	(17,270)		(15,090)
Repurchases and retirement of common stock	(48,989)		(45,248)
Proceeds from common stock issued under employee stock purchase plan	388		294
Payment of minimum tax withholdings on share-based awards	(3,074)		(3,444)
Contributions from (distributions to) subsidiary held for sale	1,118		(8,897)
Net cash used in financing activities from continuing operations	(27,347)		(31,297)
Net increase (decrease) in cash and cash equivalents of continuing operations	11,676		(21,759)

Cash from discontinued operation:
Net cash used in operating activities of discontinued operation	(6,902)		(8,090)
Net cash provided by (used in) investing activities of discontinued operation	8,020		(807)
Net cash (used in) provided by financing activities of discontinued operation	(1,118)		8,897
Net increase (decrease) in cash and cash equivalents	11,676		(21,759)
Cash and cash equivalents at beginning of period of continuing operations	40,254		64,749
Cash at beginning of period of discontinued operation	—		—
Net increase (decrease) in cash and cash equivalents	11,676		(21,759)
Less: cash at end of period of discontinued operation	—		—
Cash and cash equivalents at end of period of continuing operations	$	51,930	$	42,990

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Forward Air Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited and in thousands)

	Common Stock			Additional Paid-in Capital		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2020	27,316	$	273	$	242,916	$	304,140	$	547,329
Net income	—	—		—		11,181		11,181
Stock options exercised	40	—		2,147		—		2,147
Share-based compensation expense	—	—		2,613		—		2,613
Payment of dividends to shareholders	—	—		3		(5,800)		(5,797)
Payment of minimum tax withholdings on share-based awards	(35)	—		—		(2,744)		(2,744)
Repurchases and retirement of common stock	(114)	(1)		—		(9,997)		(9,998)
Issuance of share-based awards	111	1		(1)		—		—
Balance at March 31, 2021	27,318	$	273	$	247,678	$	296,780	$	544,731
Net income	—	—		—		30,677		30,677
Stock options exercised	26	—		1,416		—		1,416
Common stock issued under employee stock purchase plan	5	—		388		—		388
Share-based compensation expense	—	—		2,981		—		2,981
Payment of dividends to shareholders	—	—		3		(5,771)		(5,768)
Payment of minimum tax withholdings on share-based awards	(1)	—		—		(82)		(82)
Repurchases and retirement of common stock	(252)	(2)		—		(23,992)		(23,994)
Issuance of share-based awards	24	—		—		—		—
Balance at June 30, 2021	27,120	$	271	$	252,466	$	297,612	$	550,349
Net income	—	—		—		23,536		23,536


Share-based compensation expense	—	—		2,601		—		2,601
Payment of dividends to shareholders	—	—		4		(5,709)		(5,705)
Payment of minimum tax withholdings on share-based awards	(3)	—		—		(248)		(248)
Repurchases and retirement of common stock	(169)	(1)		—		(14,996)		(14,997)
Issuance of share-based awards	10	—		—		—		—
Balance at September 30, 2021	26,958	$	270	$	255,071	$	300,195	$	555,536

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	Common Stock			Additional Paid-in Capital		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2019	27,850	$	279	$	226,869	$	350,034	$	577,182
Net income	—	—		—		8,375		8,375
Share-based compensation expense	—	—		3,266		—		3,266
Payment of dividends to shareholders	—	—		2		(5,052)		(5,050)
Payment of minimum tax withholdings on share-based awards	(42)	—		—		(2,672)		(2,672)
Repurchases and retirement of common stock	(268)	(3)		—		(15,256)		(15,259)
Issuance of share-based awards	139	1		(2)		—		(1)
Balance at March 31, 2020	27,679	$	277	$	230,135	$	335,429	$	565,841
Net income	—	—		—		3,155		3,155
Common stock issued under employee stock purchase plan	7	—		295		—		295
Share-based compensation expense	—	—		2,654		—		2,654
Payment of dividends to shareholders	—	—		3		(5,042)		(5,039)
Payment of minimum tax withholdings on share-based awards	(13)	—		—		(613)		(613)
Issuance of share-based awards	56	—		(1)		—		(1)
Balance at June 30, 2020	27,729	$	277	$	233,086	$	332,929	$	566,292
Net income	—	—		—		16,647		16,647

Stock options exercised	42	1		1,901		—		1,902

Share-based compensation expense	—	—		2,507		—		2,507
Payment of dividends to shareholders	—	—		3		(5,008)		(5,005)
Payment of minimum tax withholdings on share-based awards	(3)	—		—		(158)		(158)
Repurchases and retirement of common stock	(519)	(5)		—		(29,984)		(29,989)
Issuance of share-based awards	9	—		—		—		—

Balance at September 30, 2020	27,258	$	273	$	237,497	$	314,426	$	552,196

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

1. Description of Business and Basis of Presentation

Basis of Presentation and Principles of Consolidation

Forward Air Corporation and its subsidiaries (“Forward Air” or the “Company”) is a leading asset-light freight and logistics company. The Company has two reportable segments: Expedited Freight and Intermodal. The Company conducts business in the United States and Canada.

The Expedited Freight segment provides expedited regional, inter-regional and national less-than-truckload (“LTL”), truckload and final mile services. Expedited Freight also offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling.

The Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station (“CFS”) warehouse and handling services.

The condensed consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results for the year.

On April 23, 2020, the Board of Directors (the “Board”) of the Company approved a strategy to divest of the Pool Distribution business (“Pool”), and the sale of Pool was completed on February 12, 2021. Pool provided high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. As a result of the strategy to divest of Pool, the results of operations for Pool are presented as a discontinued operation in the Condensed Consolidated Statements of Comprehensive Income for all periods presented. In addition, assets and liabilities were reflected as “Assets and liabilities held for sale” in the Condensed Consolidated Balance Sheets for the prior period. Unless otherwise noted, amounts, percentages and discussion for all periods reflect the results of operations, financial condition and cash flows from the Company’s continuing operations.

2. Revenue Recognition

Revenue is recognized when the Company satisfies the performance obligation by the delivery of a shipment in accordance with contractual agreements, bills of lading (“BOLs”) and general tariff provisions. The amount of revenue recognized is measured as the consideration the Company expects to receive in exchange for those services pursuant to a contract with a customer. A contract exists once the Company enters into a contractual agreement with a customer. The Company does not recognize revenue in cases where collectibility is not probable, and defers recognition until collection is probable or payment is received.

The Company generates revenue from the delivery of a shipment and the completion of related services. Revenue for the delivery of a shipment is recorded over time to coincide with when customers simultaneously receive and consume the benefits of the delivery services. Accordingly, revenue billed to a customer for the transportation of freight are recognized over the transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a shipment based on the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of a reporting period. The determination of the transit period and how much of it has been completed as of a given reporting date may require the Company to make judgments that impact the timing of revenue recognized. For delivery of shipments with a pick-up date in one reporting period and a delivery date in another reporting period, the Company recognizes revenue based on relative transit time in each reporting period. A portion of the total revenue to be billed to the customer after completion of a delivery is recognized in each reporting period based on the percentage of total transit time that has been completed at the end of the

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

applicable reporting period. Upon delivery of a shipment or related service, customers are billed according to the applicable payment terms. Related services are a separate performance obligation and include accessorial charges such as terminal handling, storage, equipment rentals and customs brokerage.

Revenue is classified based on the line of business as the Company believes that best depicts the nature, timing and amount of revenue and cash flows. For all lines of business, the Company records revenue on a gross basis as it is the principal in the transaction as the Company has discretion to determine the amount of consideration. Additionally, the Company has the discretion to select drivers and other vendors for the services provided to customers. These factors, discretion in the amount of consideration and the selection of drivers and other vendors, support revenue recognized on a gross basis.

3. Discontinued Operation and Held for Sale

As previously disclosed, on April 23, 2020, the Company made a decision to divest of Pool. The Pool business met the criteria for held for sale classification. As a result, the assets and liabilities of Pool were presented separately under the captions “Current assets held for sale”, “Noncurrent assets held for sale”, “Current liabilities held for sale” and “Noncurrent liabilities held for sale” in the Condensed Consolidated Balance Sheets as of December 31, 2020. The results of Pool were reclassified to “Loss from discontinued operation, net of tax” in the Condensed Consolidated Statements of Comprehensive Income for three and nine months ended September 30, 2021 and 2020. Certain corporate overhead and other costs previously allocated to Pool for segment reporting purposes did not qualify for classification within discontinued operation and have been reallocated to continuing operations. These costs were reclassified to the eliminations column in the segment reconciliation in Note 13, Segment Reporting.

Sale of Pool

On February 12, 2021, the Company completed the sale of the Pool business for $8,000 in cash and up to a $12,000 earn-out based on earnings before interest, taxes, depreciation and amortization. The sale agreement for Pool included an earn-out based on the achievement of certain earnings before interest, taxes, depreciation and amortization attainment over an eleven-month period, beginning February 1, 2021. The estimated fair value of the earn-out asset on the date of sale was $6,967. The fair value was based on the estimated eleven-month period of the earnings before interest, taxes, depreciation and amortization and was calculated using a Monte Carlo simulation model.

The weighted-average assumptions under the Monte Carlo simulation model were as follows:


			February 12, 2021
Counterparty credit spread			1.2%
Earnings before interest, taxes, depreciation and amortization discount rate			15.0%
Asset volatility			55.0%

Subsequent to the date of sale, the Company recognized any increases in the carrying value of the earn-out asset when the change was realized and evaluated the earn-out asset for impairment at each reporting period. The financial performance of the Pool business significantly deteriorated during the three months ended September 30, 2021. As a result, an evaluation of the earn-out asset for impairment was completed, which included a review of revised forecasts, updated strategic operating decisions and current market conditions. The revised forecasts indicated an impairment of the entire earn-out asset was necessary as of September 30, 2021. A non-cash charge of $6,967 was recorded as an “Impairment charge” in the summarized discontinued operation financial information for the three and nine months ended September 30, 2021.

Transition Services Agreement

On February 12, 2021, the Company entered into a Transition Services Agreement (“TSA”) with TOG FAS Holdings LLC, the buyer of the Pool business. Under the TSA, the Company performed certain services on an interim basis in order to facilitate the orderly transition of the Pool business. The effective date of the TSA was February 12, 2021 and remained in effect until the date all services were completed, but no more than six months following the effective date. The TSA provided the right to extend the term of the TSA with no limit on the number of the mutually agreed upon extensions. In exchange for the services performed by the Company under the TSA, the Company received a monthly service charge. For the three and nine months ended September 30, 2021, the Company recognized $229 and $641, respectively, in “Other operating expenses” in the

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

Condensed Consolidated Statements of Comprehensive Income, for the services performed under the TSA. The TSA ended in October 2021 when all services were completed.

Additionally, under the TSA, the Company remitted payments to outside vendors on behalf of TOG FAS Holdings LLC for expenses incurred by the Pool business up to a limit of $18,000. The Company is reimbursed by TOG FAS Holdings LLC within 60 days from the end of the month in which the payment is remitted. As of September 30, 2021, the Company recorded a receivable in the amount of $14,218 in “Other receivables” in the Condensed Consolidated Balance Sheets for the reimbursement due to the Company. The Company evaluates the collectability of the receivable at least quarterly and if the Company is aware of the inability of TOG FAS Holdings LLC to meet its financial obligations to the Company, the Company will record a specific reserve in order to reduce the receivable to the amount the Company reasonably believes will be collected. The Company believes collectibility of the receivable is probable as of September 30, 2021.

Summarized Discontinued Operation Financial Information

A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 is as follows:







	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Operating revenues	$	—	$	37,521	$	17,087	$	88,447

Operating expenses:
Purchased transportation	—		8,700		4,290		21,383
Salaries, wages and employee benefits	—		17,012		9,674		42,519
Operating leases	—		5,304		2,907		15,950
Depreciation and amortization	—		—		—		1,657
Insurance and claims	—		1,525		929		4,538
Fuel expense	—		1,045		644		2,785
Other operating expenses	—		4,467		2,087		12,309
Impairment charge	6,967		—		6,967		—
Total operating expenses	6,967		38,053		27,498		101,141
Loss from discontinued operation	(6,967)		(532)		(10,411)		(12,694)
Loss on sale of business	—		—		(2,860)		—
Loss from discontinued operation before income taxes	(6,967)		(532)		(13,271)		(12,694)
Income tax benefit	—		(187)		(771)		(3,236)
Loss from discontinued operation, net of tax	$	(6,967)	$	(345)	$	(12,500)	$	(9,458)

4. Acquisitions

Expedited Freight Acquisition

As part of the Company’s strategy to expand final mile pickup and delivery operations, in April 2019, the Company acquired certain assets and liabilities of FSA Network, Inc., doing business as FSA Logistix (“FSA”), for $27,000 and a potential earn-out of up to $15,000. The purchase agreement for FSA included an earn-out up to $15,000 based on the achievement of certain revenue milestones over two one-year periods, beginning May 1, 2019. The estimated fair value of the earn-out liability on the date of acquisition was $11,803. The fair value was based on the estimated two-year performance of the acquired customer revenue and was calculated using a Monte Carlo simulation model. The fair value of the earn-out liability

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

was adjusted at each reporting period based on changes in the expected cash flows and related assumptions used in the Monte Carlo simulation model. During the three and nine months ended September 30, 2021, the fair value of the earn-out changed by zero and ($52), respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. During the three and nine months ended September 30, 2020, the fair value of the earn-out changed by $493 and ($2,209), respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. The first one-year period ended in the second quarter of 2020 and the Company paid $5,284 based on the terms of the purchase agreement. The second one-year period ended in the second quarter of 2021 and the Company paid $6,813 in the third quarter of 2021 based on the terms of the purchase agreement. As of December 31, 2020, the fair value of the earn-out liability was $6,865, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.

In May 2021, the Company acquired certain assets and liabilities of J&P Hall Express Delivery (“J&P”) for $7,543. J&P is headquartered in Atlanta, Georgia with a second terminal in Albany, Georgia. The acquisition of J&P supports the Company’s strategic growth plan by expanding pickup and delivery, less-than-truckload, truckload, less than container load, container freight station warehousing, and airport transfer services across the Southeastern United States. The acquisition was financed by cash flow from operations. The results of J&P have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Expedited Freight reportable segment.

Intermodal Acquisition

In February 2021, the Company acquired certain assets and liabilities of Proficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport”) for $15,510 and a potential earn-out up to $2,000. Proficient Transport is an intermodal drayage company headquartered in Chicago, Illinois. The acquisition of Proficient Transport supports the Company’s strategic growth plan by expanding the intermodal footprint in Georgia, Illinois, North Carolina, and Texas, and introduces a new location in Ohio. The acquisition was financed by cash flows from operations. The results of Proficient Transport have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Intermodal reportable segment.

The purchase agreement for Proficient Transport included an earn-out up to $2,000 based on the achievement of certain revenue milestones over a one-year period, beginning March 1, 2021. The estimated fair value of the earn-out liability on the date of acquisition was $829. The fair value was based on the estimated one-year performance of the acquired customer revenue and was calculated using the option pricing method. The weighted-average assumptions used to calculate the estimated fair value of the earn-out under the option pricing method were as follows:


	February 28, 2021	September 30, 2021
Risk-free rate	0.1%	0.1%
Revenue discount rate	8.3%	8.3%
Revenue volatility	27.3%	19.7%

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

During the three and nine months ended September 30, 2021, the fair value of the earn-out changed by zero and ($333), respectively, and the change in the fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. As of September 30, 2021, the fair value of the earn-out liability was $496, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.

Fair Value of Assets Acquired and Liabilities Assumed

Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:


	Proficient Transport		J&P
	February 28, 2021		May 30, 2021
Tangible assets:
Accounts receivable	$	4,171	$	1,942

Prepaid expenses and other current assets	—		32
Property and equipment	140		934
Other assets	24		3


Total tangible assets	4,335		2,911
Intangible assets:
Customer relationships	6,060		1,580
Non-compete agreements	18		132

Goodwill	6,249		3,545
Total intangible assets	12,327		5,257
Total assets acquired	16,662		8,168

Liabilities assumed:
Current liabilities	323		625




Total liabilities assumed	323		625
Net assets acquired	$	16,339	$	7,543

The fair value of the assets acquired and liabilities assumed are preliminary based on the information available as of the acquisition date through the date of this filing.

The weighted-average useful life of acquired intangible assets as of the acquisition date are summarized in the following table:


	Weighted-Average Useful Lives
	Proficient Transport	J&P
Customer relationships	8 years	12 years
Non-compete agreements	1 year	5 years

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

5. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the nine months ended September 30, 2021 are summarized as follows:


	Expedited Freight		Intermodal		Consolidated




Balance as of December 31, 2020	$	165,268	$	79,714	$	244,982
Acquisitions	3,545		6,249		9,794
Balance as of September 30, 2021	$	168,813	$	85,963	$	254,776

Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of June 30 each year. Based on the current macroeconomic conditions, the Company assessed its goodwill and other intangible assets for indications of impairment as of September 30, 2021 and concluded there were no indicators of impairment during the three months ended September 30, 2021.

Other Intangible Assets

Changes in the carrying amount of acquired intangible assets during the nine months ended September 30, 2021 are summarized as follows:


	Gross Carrying Amount
	Customer Relationships1		Non-Compete Agreements		Trade Names		Total
Balance as of December 31, 2020	$	228,416	$	8,125	$	1,500	$	238,041
Acquisitions	7,640		150		—		7,790
Balance as of September 30, 2021	$	236,056	$	8,275	$	1,500	$	245,831


	Accumulated Amortization
	Customer Relationships1		Non-Compete Agreements		Trade Names		Total
Balance as of December 31, 2020	$	85,930	$	5,579	$	1,500	$	93,009
Amortization expense	9,652		974		—		10,626
Balance as of September 30, 2021	$	95,582	$	6,553	$	1,500	$	103,635

1 Carrying value as of September 30, 2021 and December 31, 2020 is inclusive of $16,501 of accumulated impairment.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

September 30, 2021

6. Stock Incentive Plans

Stock Incentive Plan

The Company recorded share-based compensation expense as follows for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Salaries, wages and employee benefits - continuing operations	$	2,283	$	2,085	$	7,015	$	7,056
Salaries, wages and employee benefits - discontinued operation	—		162		16		572
Total share-based compensation expense	$	2,283	$	2,247	$	7,031	$	7,628

In May 2016, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) for the issuance of up to 2,000 of common shares to employees. As of September 30, 2021, approximately 799 shares remain available for grant under the Omnibus Plan.

Stock Options

Share-based compensation expense associated with stock options is amortized ratably over the vesting period. The Company estimates the fair value of the grants using the Black-Scholes option-pricing model.

Stock option transactions during the nine months ended September 30, 2021 on a continuing operations basis were as follows:


	Stock Options	Weighted-Average Exercise Price
Outstanding as of January 1, 2021	359	$	55.79
Granted	39	75.05
Exercised	(52)	54.57
Forfeited	—