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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
OR
☐ 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)
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| | Tennessee | | | 62-1120025 |
(State or other jurisdiction of incorporation) | | (I.R.S. Employer Identification No.) |
1915 Snapps Ferry Road | Building N | Greeneville | TN | | 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.
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Large accelerated filer | x | 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 |
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Forward Air Corporation |
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| | Number |
Part I. | Financial Information | |
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Item 1. | Financial Statements (Unaudited) | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Part II. | Other Information | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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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 | |
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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 | |
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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 | |
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Total operating expenses | 1,095,174 | | | 866,034 | |
Income from continuing operations | 107,324 | | | 53,198 | |
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Other expense: | | | |
Interest expense | (3,461) | | | (3,355) | |
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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.
| | | | | | | | | | | |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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.
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
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
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
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% |
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 |
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.
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 | — | | | |