fwrd-20220331

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 March 31, 2022

☐ 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 May 6, 2022 was 26,861,667.


Table of Contents
Forward Air Corporation

		Page
		Number
	Part I: Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2022 and 2021	4



	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2022 and 2021	5

	Condensed Consolidated Statements of Shareholders’ Equity – Three Months Ended March 31, 2022 and 2021	6

	Notes to Condensed Consolidated Financial Statements – March 31, 2022	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

	Part II: Other Information

Item 1.	Legal Proceedings	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other	39

Item 6.	Exhibits	40

Signatures		41

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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)

	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	61,630	$	37,316
Accounts receivable, less allowance of $3,298 in 2022 and $3,260 in 2021	236,666		208,085
Other receivables	4,488		8,097
Other current assets	22,468		29,309

Total current assets	325,252		282,807

Property and equipment, net of accumulated depreciation and amortization of $206,980 in 2022 and $200,867 in 2021	224,060		219,095
Operating lease right-of-use assets	153,337		148,198

Goodwill	265,639		266,752
Other acquired intangibles, net of accumulated amortization of $111,415 in 2022 and $107,337 in 2021	150,638		154,717

Other assets	47,880		46,254

Total assets	$	1,166,806	$	1,117,823

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	54,430	$	44,837
Accrued expenses	66,467		61,621
Other current liabilities	12,479		4,614
Current portion of debt and finance lease obligations	6,069		6,088
Current portion of operating lease liabilities	48,499		47,532

Total current liabilities	187,944		164,692

Finance lease obligations, less current portion	8,767		9,571
Long-term debt, less current portion and debt issuance costs	155,125		155,466
Operating lease liabilities, less current portion	105,773		101,409
Other long-term liabilities	52,376		49,624
Deferred income taxes	45,050		43,407


Shareholders’ equity:
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued or outstanding in 2022 and 2021	—		—
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 26,861,667 in 2022 and 26,968,788 in 2021	269		270
Additional paid-in capital	261,444		258,474
Retained earnings	350,058		334,910
Total shareholders’ equity	611,771		593,654
Total liabilities and shareholders’ equity	$	1,166,806	$	1,117,823

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
	March 31, 2022		March 31, 2021
Operating revenues	$	466,961	$	362,202

Operating expenses:
Purchased transportation	224,832		184,608
Salaries, wages and employee benefits	86,081		74,897
Operating leases	22,673		19,167
Depreciation and amortization	11,130		9,237
Insurance and claims	11,968		9,741
Fuel expense	5,865		3,702
Other operating expenses	47,061		38,126

Total operating expenses	409,610		339,478
Income from continuing operations	57,351		22,724

Other expense:
Interest expense	(784)		(1,165)

Total other expense	(784)		(1,165)
Income before income taxes	56,567		21,559
Income tax expense	13,881		4,845
Net income from continuing operations	42,686		16,714
Loss from discontinued operation, net of tax	—		(5,533)
Net income and comprehensive income	$	42,686	$	11,181

Basic net income (loss) per share
Continuing operations	$	1.57	$	0.61
Discontinued operation	—		(0.20)
Net income per basic share	$	1.57	$	0.40

Diluted net income (loss) per share
Continuing operations	$	1.57	$	0.60
Discontinued operation	—		(0.20)
Net income per diluted share	$	1.57	$	0.40

Dividends per share	$	0.24	$	0.21

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)

	Three Months Ended
	March 31, 2022		March 31, 2021

Operating activities:
Net income from continuing operations	$	42,686	$	16,714
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations
Depreciation and amortization	11,130		9,237

Change in fair value of earn-out liability	(294)		(48)
Share-based compensation expense	2,761		2,597
Provision for revenue adjustments	1,304		1,777
Deferred income tax expense (benefit)	1,643		(505)
Other	132		92
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses:
Accounts receivable	(30,278)		(28,023)
Other receivables	3,609		(13,339)
Other current and noncurrent assets	13,818		7,085
Accounts payable and accrued expenses	15,975		21,326
Net cash provided by operating activities of continuing operations	62,486		16,913

Investing activities:
Proceeds from sale of property and equipment	511		665
Purchases of property and equipment	(9,908)		(2,695)
Purchases of a business, net of cash acquired	—		(15,000)
Net cash used in investing activities of continuing operations	(9,397)		(17,030)

Financing activities:
Repayments of finance lease obligations	(1,070)		(467)

Payments on credit facility	(375)		—


Proceeds from issuance of common stock upon stock option exercises	206		2,147
Payments of dividends to shareholders	(6,502)		(5,797)
Repurchases and retirement of common stock	(17,780)		(9,998)

Payment of minimum tax withholdings on share-based awards	(3,254)		(2,744)
Contributions from subsidiary held for sale	—		1,118
Net cash used in financing activities from continuing operations	(28,775)		(15,741)
Net increase (decrease) in cash and cash equivalents of continuing operations	24,314		(15,858)

Cash from discontinued operation:
Net cash used in operating activities of discontinued operation	—		(6,902)
Net cash provided by investing activities of discontinued operation	—		8,020
Net cash used in financing activities of discontinued operation	—		(1,118)
Net increase (decrease) in cash and cash equivalents	24,314		(15,858)
Cash and cash equivalents at beginning of period of continuing operations	37,316		40,254
Cash at beginning of period of discontinued operation	—		—
Net increase (decrease) in cash and cash equivalents	24,314		(15,858)
Less: cash at end of period of discontinued operation	—		—
Cash and cash equivalents at end of period of continuing operations	$	61,630	$	24,396

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, 2021	26,969	$	270	$	258,474	$	334,910	$	593,654
Net income	—	—		—		42,686		42,686
Stock options exercised	3	—		206		—		206

Share-based compensation expense	—	—		2,761		—		2,761
Payment of dividends to shareholders	—	—		4		(6,506)		(6,502)
Payment of minimum tax withholdings on share-based awards	(30)	—		—		(3,254)		(3,254)
Repurchases and retirement of common stock	(176)	(2)		—		(17,778)		(17,780)
Issuance of share-based awards	96	1		(1)		—		—
Balance at March 31, 2022	26,862	$	269	$	261,444	$	350,058	$	611,771


	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

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)

March 31, 2022

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 Company’s condensed consolidated financial statements include Forward Air Corporation and it's wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

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, 2021. 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 were presented as a discontinued operation in the Condensed Consolidated Statements of Comprehensive Income for the prior period. Unless otherwise noted, amounts, percentages and discussion for the prior period reflect the results of operations, financial condition and cash flows from the Company’s continuing operations. Refer to Note 3, Discontinued Operation, for further discussion.

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

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

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 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

As previously disclosed, on April 23, 2020, the Company made a decision to divest of Pool and the sale was completed on February 12, 2021. As a result, the results of Pool were classified to “Loss from discontinued operation, net of tax” in the Condensed Consolidated Statements of Comprehensive Income for three months ended March 31, 2021. Certain corporate overhead and other costs previously allocated to Pool for segment reporting purposes did not qualify for classification within discontinued operation and were allocated to continuing operations. These costs were classified to the eliminations column in the segment reconciliation in Note 13, Segment Reporting.

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 months ended March 31, 2021, the Company recognized $171 in “Other operating expenses” in the 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 was reimbursed by TOG FAS Holdings LLC within 60 days from the end of the month in the payment was remitted. As of March 31, 2022 and December 31, 2021, the Company recorded a receivable in the amount of $4,488 and $8,097 respectively, in “Other receivables” in the Condensed Consolidated Balance Sheets for the reimbursement due to the Company. The Company evaluates the collectability of the receivables 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 March 31, 2022.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

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 months ended March 31, 2021 is as follows:








	March 31, 2021
Operating revenue	$	17,087

Operating expenses:
Purchased transportation	4,290
Salaries, wages and employee benefits	9,674
Operating leases	2,907
Depreciation and amortization	—
Insurance and claims	929
Fuel expense	644
Other operating expenses	2,087

Total operating expenses	20,531
Loss from discontinued operation	(3,444)
Loss on sale of business	(2,860)
Loss from discontinued operation before income taxes	(6,304)
Income tax benefit	(771)
Loss from discontinued operation, net of tax	$	(5,533)

4. Acquisitions

Intermodal Acquisitions

In February 2021, the Company acquired certain assets and liabilities of Proficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport”) for $16,339 and a potential earn-out of up to $2,000.

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 fair value of the earn-out liability was adjusted at each reporting period based on changes in the expected cash flows and related assumptions used in the option pricing method. During the three months ended March 31, 2022 and 2021, the fair value of the earn-out changed by ($294) and ($—) respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. As of March 31, 2022 and December 31, 2021, the fair value of the earn-out liability was $91 and $385 respectively, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.

In November 2021, the Company acquired certain assets and liabilities of BarOle Trucking, Inc. (“BarOle”) for $35,436. BarOle is an intermodal drayage company headquartered in Roseville, Minnesota. The acquisition of BarOle provides additional capacity and resources to meet customer demands in the intermodal market, and extends the service footprint to the Minneapolis-Saint Paul, Minnesota area. In addition, BarOle has a larger terminal location, which allows for further expansion in the future. The acquisition was financed by cash flows from operations. The results of BarOle 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.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

Fair Value of Assets Acquired and Liabilities Assumed

Assets acquired and liabilities assumed as of the acquisition date for BarOle are summarized in the following table:



	November 30, 2021
Tangible assets:

Accounts receivable	$	2,481


Property and equipment	6,464


Total tangible assets	8,945
Intangible assets:
Customer relationships	16,282
Non-compete agreements	913
Goodwill	9,564
Total intangible assets	26,759
Total assets acquired	35,704

Liabilities assumed:
Current liabilities	268



Total liabilities assumed	268
Net assets acquired	$	35,436

The preliminary purchase price for BarOle has been allocated to assets acquired and liabilities assumed based on the the Company’s best estimates and assumptions using the information available as of the acquisition date through the date of this filing. The provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to these acquisitions are subject to adjustments in subsequent periods as the Company finalizes its purchase price allocation, including the third-party valuations. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

The estimated useful life of acquired intangible assets as of the acquisition date for BarOle are summarized in the following table:


						Estimated Useful Lives

Customer relationships						8 years
Non-compete agreements						5 years

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

5. Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the three months ended March 31, 2022 are summarized as follows:


	Expedited Freight		Intermodal		Consolidated




Balance as of December 31, 2021	$	169,288	$	97,464	$	266,752
Acquisition adjustment	—		(1,113)		(1,113)

Balance as of March 31, 2022	$	169,288	$	96,351	$	265,639

The Company’s accumulated goodwill impairment is $25,686 related to impairment charges the Company recorded during 2016 pertaining to its TLS reporting unit. The TLS reporting unit operates within the Expedited Freight reportable segment. As of March 31, 2022, approximately $186,495 of goodwill is deductible for tax purposes.

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. There have been no indicators of impairment during the three months ended March 31, 2022.

Other Intangible Assets

Changes in the carrying amount of acquired intangible assets during the three months ended March 31, 2022 are summarized as follows:


	Gross Carrying Amount
	Customer Relationships1		Non-Compete Agreements		Trade Names		Total
Balance as of December 31, 2021	$	251,377	$	9,176	$	1,500	$	262,053
Acquisition	—		—		—		—
Balance as of March 31, 2022	$	251,377	$	9,176	$	1,500	$	262,053


	Accumulated Amortization
	Customer Relationships1		Non-Compete Agreements		Trade Names		Total
Balance as of December 31, 2021	$	99,094	$	6,743	$	1,500	$	107,337
Amortization expense	3,782		296		—		4,078
Balance as of March 31, 2022	$	102,876	$	7,039	$	1,500	$	111,415

1 Carrying value as of March 31, 2022 and December 31, 2021 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)

March 31, 2022

6. Stock Incentive Plans

Stock Incentive Plan

The Company recorded share-based compensation expense as follows for the three months ended March 31, 2022 and 2021:


	Three Months Ended
	March 31, 2022		March 31, 2021
Salaries, wages and employee benefits - continuing operations	$	2,422	$	2,269
Salaries, wages and employee benefits - discontinued operation	—		16
Total share-based compensation expense	$	2,422	$	2,285

In May 2016, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) for the issuance of up to 2,000 common shares to employees. As of March 31, 2022, approximately 649 shares remain available for grant under the Omnibus Plan.

Stock Options

Certain executives are eligible to receive grants of stock options. Stock options vest over a three-year period from the date of grant. Share-based compensation expense associated with these awards 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 three months ended March 31, 2022 on a continuing operations basis were as follows:


	Stock Options	Weighted-Average Exercise Price
Outstanding as of January 1	342	$	58.44
Granted	64	106.13
Exercised	(3)	60.42
Forfeited	—	—
Outstanding as of March 31	403	$	65.95

As of March 31, 2022, the total share-based compensation expense related to unvested stock options not yet recognized was $2,343, and the weighted-average period over which it is expected to be recognized is approximately three years.

Restricted Shares

The Company’s primary long-term incentive plan is a restricted share award plan that entitles employees to receive a share of the Company’s common stock subject to vesting requirements based on continued employment. Shares granted under the restricted share award plan are restricted from sale or transfer until vesting, and the restrictions lapse in three equal installments beginning one year after the date of grant. Dividends are paid in cash on a current basis throughout the vesting period. Share-based compensation expense associated with these awards is amortized ratably over the requisite service period.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

Restricted share transactions on a continuing operations basis during the three months ended March 31, 2022 were as follows:


	Restricted Shares	Weighted-Average Grant Date Fair Value
Outstanding as of January 1	191	$	69.84
Granted	77	106.24
Vested	(89)	67.39
Forfeited	(3)	87.11
Outstanding as of March 31	176	$	86.70

As of March 31, 2022, the total share-based compensation expense related to restricted shares not yet recognized was $14,051, and the weighted-average period over which it is expected to be recognized is approximately two years.

Performance Awards

Performance awards are based on achieving certain financial targets, such as targets for earnings before interest, taxes, depreciation and amortization, and the Company’s total shareholder return as compared to the total shareholder return of a selected peer group, as determined by the Board. Performance targets are set at the beginning of each three-year measurement period. Share-based compensation expense associated with these awards is amortized ratably over the vesting period. Depending on the financial target, the compensation expense is determined based on the projected assessment of the level of performance that will be achieved. The Company estimates the fair value of the grants with a financial target based on the Company’s total shareholder return using a Monte Carlo simulation model.

Performance award transactions during the three months ended March 31, 2022 on a continuing operations basis were as follows assuming target levels of performance:


	Performance Awards	Weighted-Average Grant Date Fair Value
Outstanding as of January 1	79	$	75.61
Granted	14	127.29

Earned	(7)	63.40
Forfeited or unearned	(7)	59.41
Outstanding as of March 31	79	$	87.69

As of March 31, 2022, the total share-based compensation expense related to unearned performance awards not yet recognized, assuming the Company’s current projected assessment of the level of performance that will be achieved, was $4,949, and the weighted-average period over which it is expected to be recognized is approximately two years.

Employee Stock Purchase Plan

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue up to a remaining 323 shares of common stock to employees. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last day of each six-month purchase period. Common stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions. No shares were issued during the three months ended March 31, 2022.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

Director Restricted Shares

Under the Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”), approved in May 2007 and further amended in February 2013 and January 2016, up to 360 of common shares may be issued. As of March 31, 2022, approximately 75 shares remain available for grant under the Amended Plan. Under the Amended Plan, each non-employee director receives an annual grant of restricted shares of the Company’s common stock. The restricted shares vest on the either of (a) the day immediately prior to the first annual shareholder meeting that occurs after the grant date or (b) one year after the grant date.

Director restricted share transactions during the three months ended March 31, 2022 were as follows:


	Director Restricted Shares	Weighted-Average Grant Date Fair Value
Outstanding as of January 1	15	$	93.46
Granted	—	—
Vested	—	—
Forfeited	—	—
Outstanding as of March 31	15	$	93.46

For the three months ended March 31, 2022 and 2021, the Company recorded $339 and $328, respectively, of share-based compensation expense associated with these grants. As of March 31, 2022, the total share-based compensation expense related to the restricted shares not yet recognized was $188, and the weighted-average period over which it is expected to be recognized is approximately less than one year.

7. Indebtedness

Long-term debt consisted of the following as of March 31, 2022 and December 31, 2021:


	March 31, 2022		December 31, 2021
Credit facility, expires 2026	$	157,125	$	157,500
Debt issuance costs	(505)		(534)
	156,620		156,966

Less: Current portion of long-term debt	(1,495)		(1,500)
Total long-term debt, less current portion	$	155,125	$	155,466

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

In September 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a maximum aggregate principal amount of $150,000, with a sublimit of $30,000 for letters of credit and a sublimit of $30,000 for swing line loans. The maturity date of the Facility was September 29, 2022. In April 2020, the Company entered into the first amendment to the Facility, which increased the maximum aggregate principal amount to $225,000. The Facility could have been increased by up to $25,000 to a maximum aggregate principal amount of $250,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. In July 2021, the Company entered into the second amendment to the Facility, which extended the maturity date to July 20, 2026 and changed the interest rate options available under the Facility. In December 2021, the Company entered into the third amendment to the Facility, which increased the amount available for borrowing under the Facility to $450,000, consisting of a $300,000 revolving line of credit and a term loan of $150,000. In connection with the third amendment, the Company borrowed $150,000 under the term loan and simultaneously repaid $150,000 on the revolving line of credit from the borrowings received. Under the third amendment, the Facility may be increased by up to $75,000 to a maximum aggregate principal amount of $525,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a combination thereof, and are contingent upon there being no events of default under the Facility. As of both March 31, 2022 and December 31, 2021, the Company had $272,466 of available borrowing capacity under the Facility.

The Facility contains covenants that, among other things, restrict the ability of the Company, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the credit agreement. The Company also has to fulfill financial covenants with respect to a leverage ratio and an interest coverage ratio. As of March 31, 2022, the Company was in compliance with the aforementioned covenants.

Under the amended Facility, interest accrues on the amounts outstanding under the Facility at the Company’s option, at either (1) Bloomberg Short-Term Bank Yield Index rate (the “BSBY Rate”), which cannot be less than zero, plus a margin ranging from 1.25% to 1.75% based on the Company’s leverage ratio, or (2) the base rate, which cannot be less than 2.00%. The base rate is the highest of (i) the federal funds rate, which cannot be less than zero, plus 0.50%, (ii) the administrative agent’s prime rate and (iii) the BSBY Rate, which cannot be less than zero, plus 1.00%, plus a margin ranging from 0.00% to 0.50% based on the Company’s leverage ratio. Interest is payable in arrears for each loan that is based on the BSBY rate on the last day of the interest period applicable to each loan, and interest is payable in arrears on loans not based on the BSBY rate on the last day of each quarter. The weighted average interest rate on the outstanding borrowings under the revolving credit facility was 1.44% and 3.25% for the three months ended March 31, 2022, and 2021, respectively.

Previously, under the Facility, interest accrued on the amounts outstanding under the Facility, at the Company’s option, at either (1) London Interbank Offered Rate (“LIBOR”) rate, not less than 1.00%, plus a margin ranging from 2.25% to 2.75% based on the Company’s leverage ratio, or (2) base rate, which cannot be less than 3.00%. The base rate was the highest of (i) the federal funds rate, not less than zero, plus 0.50%, (ii) the administrative agent’s prime rate and (iii) the LIBOR rate, not less than 1.00%, plus 1.00%, plus a margin ranging from 0.25% to 0.75% based on the Company’s leverage ratio. Interest was payable in arrears for each loan that was based on the LIBOR rate on the last day of the interest period applicable to each loan, and interest was payable in arrears on loans not based on the LIBOR rate on the last day of each quarter.

Letters of Credit

The Company has an arrangement under the Facility to issue letters of credit, which guarantee the Company’s obligations for potential claims exposure for insurance coverage. As of both March 31, 2022 and December 31, 2021, outstanding letters of credit totaled $20,034.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

8. Net Income (Loss) Per Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during each period. Restricted shares have non-forfeitable rights to dividends and as a result, are considered participating securities for purposes of computing net income (loss) per common share pursuant to the two-class method. Diluted net income (loss) per common share assumes the exercise of outstanding stock options and the vesting of performance share awards using the treasury stock method when the effects of such assumptions are dilutive.

A reconciliation of net income (loss) attributable to Forward Air and weighted-average common shares outstanding for purposes of calculating basic and diluted net income (loss) per share during the three months ended March 31, 2022 and 2021 is as follows:


	Three Months Ended
	March 31, 2022		March 31, 2021

Numerator:
Net income and comprehensive income from continuing operations	$	42,686	$	16,714
Net loss and comprehensive loss from discontinued operation	—		(5,533)
Net income attributable to Forward Air	$	42,686	$	11,181

Income allocated to participating securities from continuing operations	(248)		(101)
Loss allocated to participating securities from discontinued operation	—		—
Income allocated to participating securities	(248)		(101)

Numerator for basic and diluted net income per share for continuing operations	$	42,438	$	16,613
Numerator for basic and diluted net loss per share for discontinued operation	$	—	$	(5,533)

Denominator:
Denominator for basic net income per share - weighted-average number of common shares outstanding	26,947		27,361
Dilutive stock options and performance share awards	153		136
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding	27,100		27,497

Basic net income (loss) per share:
Continuing operations	$	1.57	$	0.61
Discontinued operation	—		(0.20)
Net income per basic share1	$	1.57	$	0.40

Diluted net income (loss) per share:
Continuing operations	$	1.57	$	0.60
Discontinued operation	—		(0.20)
Net income per diluted share	$	1.57	$	0.40

1 Rounding may impact summation of amounts.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

The number of shares that were not included in the calculation of net income (loss) per diluted share because to do so would have been anti-dilutive for the three months ended March 31, 2022 and 2021 are as follows:


	Three Months Ended
	March 31, 2022	March 31, 2021
Anti-dilutive stock options	64	25
Anti-dilutive performance shares	14	3
Anti-dilutive restricted shares and deferred stock units	—	1
Total anti-dilutive shares	78	29

9. Income Taxes

For the three months ended March 31, 2022 and 2021, the Company recorded income tax expense of $13,881 and $4,845, respectively, for continuing operations. The effective tax rate of 24.5% for the three months ended March 31, 2022 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards. The effective tax rate of 22.5% for the three months ended March 31, 2021 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards.

The Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both March 31, 2022 and December 31, 2021, the Company had $241 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. As of both March 31, 2022 and December 31, 2021, the Company had accrued interest and penalties related to unrecognized tax benefits of $88. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2014.

The sale of Pool resulted in a capital loss in the amount of $4,230, which expires in 2026. The Company concluded that it was more likely than not the capital loss carryforward will not be realized and therefore, established a valuation allowance of $4,230 to reserve against its capital loss carryforward. The Company also maintains a valuation allowance to reserve against its state net operating loss carryforwards of $395. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies. In making this assessment, all available evidence was considered including economic climate, as well as reasonable tax planning strategies. The Company believes it is more likely than not that it will realize its remaining net deferred tax assets, net of the valuation allowance, in future years.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

10. Fair Value of Financial Instruments

The Company categorizes its assets and liabilities into one of three levels based on the assumptions used in valuing the asset or liability. Estimates of fair value financial assets and liabilities are based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.

•Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 - Model-derived valuations in which one or more significant inputs are unobservable.

As previously discussed in Note 4, Acquisitions, the estimated fair value of the earn-out liability was determined using the option pricing method. The significant inputs used to calculate the estimated fair value are derived from a combination of observable and unobservable market data. Observable inputs used in the option pricing method include the risk-free rate and the revenue volatility while unobservable inputs include the revenue discount rate and the estimated revenue projections.

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are summarized below:


	As of March 31, 2022
	Level 1		Level 2		Level 3		Total
Earn-out liability	$	—	$	—	$	91	$	91

	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Earn-out liability	$	—	$	—	$	385	$	385

Cash and cash equivalents, accounts receivable, other receivables, and accounts payable are valued at their carrying amounts in the Company’s Condensed Consolidated Balance Sheets, due to the immediate or short-term maturity of these financial instruments.

The carrying amount of long-term debt under the Company’s credit facility approximate fair value based on the borrowing rates currently available to the Company for a loan with similar terms and average maturity.

As of March 31, 2022, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $13,203, compared to its carrying value of $13,341. As of December 31, 2021, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $14,312, compared to its carrying value of $14,159.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

11. Shareholders’ Equity

Cash Dividends

During the first quarter of 2022, the Board declared and the Company has paid a quarterly cash dividend of $0.24 per common share. During each quarter of 2021, the Company’s Board of Directors declared and the Company has paid a quarterly cash dividend of $0.21 per common share

On April 25, 2022, the Board declared a quarterly cash dividend of $0.24 per common share that will be paid in the second quarter of 2022.

Share Repurchase Program

On February 5, 2019, the Board approved a stock repurchase plan authorizing the repurchase of up to 5,000 shares of the Company’s common stock (the “2019 Repurchase Plan”). The 2019 Repurchase Plan expires when the shares authorized for repurchase are exhausted or the 2019 Repurchase Plan is canceled.

During the three months ended March 31, 2022, the Company repurchased through open market transactions 176 shares of common stock for $17,780, or an average of $100.86 per share, and during the three months ended March 31, 2021, the Company repurchased through open market transactions 114 shares of common stock for $9,997, or an average of $87.89 per share. All shares received were retired upon receipt, and the excess of the purchase price over the par value per share was recorded to “Retained Earnings” in the Condensed Consolidated Balance Sheets.

As of March 31, 2022, the remaining shares permitted to be repurchased under the 2019 Repurchase Plan were approximately 2,657 shares.

12. Commitments and Contingencies

Contingencies

The Company is party to various legal claims and actions incidental to its business, including claims related to vehicle liability, workers’ compensation, property damage and employee medical benefits. The Company accrues for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Based on the knowledge of the facts, the Company believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on its Condensed Consolidated Financial Statements. Moreover, the results of complex legal proceedings are difficult to predict, and the Company’s view of these matters may change in the future as the litigation and related events unfold.

Insurance coverage provides the Company with primary and excess coverage for claims related to vehicle liability, workers’ compensation, property damage and employee medical benefits.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

For vehicle liability, the Company retains a portion of the risk. Below is a summary of the Company’s risk retention on vehicle liability insurance coverage maintained by the Company through $10,000:

Company
Risk Retention

Frequency

Layer

Policy Term

Expedited Freight¹

LTL business

3,000

Occurrence/Accident²

$0 to $3,000

10/1/2021 to 10/1/2022

Truckload business

2,000

Occurrence/Accident²

$0 to $2,000

10/1/2021 to 10/1/2022

LTL business

6,000

Policy Term Aggregate³

$3,000 to $5,000

10/1/2021 to 10/1/2022

LTL, Truckload and Intermodal businesses

2,500

Policy Term Aggregate³

$5,000 to $10,000

10/1/2021 to 10/1/2022

Intermodal

1,000

Occurrence/Accident²

$0 to $1,000

10/1/2021 to 10/1/2022

¹ Excluding the Final Mile business, which is primarily a brokered service.

² For each and every accident, the Company is responsible for damages and defense up to these amounts, regardless of the number of claims associated with any accident.

³ During the Policy Term, the Company is responsible for damages and defense within the stated Layer up to the stated, aggregate amount of Company Risk Retention before insurance will respond.

Also, from time to time, when brokering freight, the Company may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and the Company maintains third-party liability insurance coverage with a $100 deductible per occurrence for most of its brokered services. Additionally, the Company maintains workers’ compensation insurance with a self-insured retention of $500 per occurrence.

Insurance coverage in excess of the self-insured retention limit is an important part of the Company’s risk management process. The Company accrues for the costs of the uninsured portion of pending claims within the self-insured retention based on the nature and severity of individual claims and historical claims development trends. The Company believes the recorded reserves are sufficient for all incurred claims up to the self-insured retention limits, including an estimate for claims incurred but not reported. However, estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult, and the Company may fail to establish sufficient insurance reserves and adequately estimate for future insurance claims. Since the ultimate resolution of outstanding claims as well as claims incurred but not reported is uncertain, it is possible that the reserves recorded for these losses could change materially in the near term. Although, an estimate cannot be made of the range of additional loss that is at least reasonably possible.

13. Segment Reporting

The Company has two reportable segments: Expedited Freight and Intermodal. The Company evaluates segment performance based on income from operations. Segment results include intersegment revenues and shared costs. Costs related to the corporate headquarters, shared services and shared assets, such as trailers, are allocated to each segment based on usage. Shared assets are not allocated to each segment, but rather the shared assets, such as trailers, are allocated to the Expedited Freight segment. Corporate includes revenues and expenses as well as assets that are not attributable to any of the Company’s reportable segments.

The accounting policies applied to each segment are the same as those described in the Summary of Significant Accounting Policies as disclosed in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2021, except for certain self-insurance loss reserves related to vehicle liability and workers’ compensation. Each segment is allocated an insurance premium and deductible that corresponds to the self-insured retention limit for that particular segment. Any self-insurance loss exposure beyond the deductible allocated to each segment is recorded in Corporate.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

Segment results from operations for the three months ended March 31, 2022 and 2021 are as follows:



	Three Months Ended March 31, 2022
	Expedited Freight		Intermodal		Corporate		Eliminations		Consolidated - Continuing Operations
External revenues	$	376,526	$	90,435	$	—	$	—	$	466,961
Intersegment revenues	65		5		—		(70)		—
Depreciation	5,673		1,340		39		—		7,052
Amortization	1,808		2,270		—		—		4,078
Income (loss) from continuing operations	47,680		11,146		(1,475)		—		57,351
Purchases of property and equipment	8,956		952		—		—		9,908

	Three Months Ended March 31, 2021
	Expedited Freight		Intermodal		Corporate		Eliminations		Consolidated - Continuing Operations
External revenues	$	303,531	$	58,502	$	—	$	—	$	362,033
Intersegment revenues	655		12		—		(498)		169
Depreciation	4,993		799		3		—		5,795
Amortization	1,805		1,637		—		—		3,442
Income (loss) from continuing operations	24,530		4,509		(6,315)		—		22,724
Purchases of property and equipment	2,411		284		—		—		2,695




















Total Assets
As of March 31, 2022	$	802,613	$	251,030	$	113,184	$	(21)	$	1,166,806
As of December 31, 2021	777,987		249,467		90,588		(219)		1,117,823

A reconciliation from the segment information to the consolidated balances for revenues is set forth below:


	Three Months Ended
	March 31, 2022		March 31, 2021
Intersegment revenues - continuing operations	$	—	$	169
Intersegment revenues - discontinued operation	—		(169)
Consolidated intersegment revenues	$	—	$	—

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

March 31, 2022

Revenue from the individual services within the Expedited Freight segment for the three months ended March 31, 2022 and 2021 are as follows: