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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, 2022
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)
| | | | | | | | | | | | | | | | | |
| 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 3, 2022 was 26,589,697.
| | | | | | | | |
Table of Contents |
Forward Air Corporation |
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| | Page |
| | 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 |
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Item 1. | Financial Statements (Unaudited). |
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Forward Air Corporation |
Condensed Consolidated Balance Sheets |
(unaudited and in thousands, except share and per share amounts) |
| | | |
| September 30, 2022 | | December 31, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 46,846 | | | $ | 37,316 | |
Accounts receivable, less allowance of $3,477 in 2022 and $3,260 in 2021 | 247,730 | | | 208,085 | |
Other receivables, less allowance of $235 in 2022 and $— in 2021 | — | | | 8,097 | |
Other current assets | 18,391 | | | 29,309 | |
| | | |
Total current assets | 312,967 | | | 282,807 | |
| | | |
Property and equipment, net of accumulated depreciation and amortization of $214,039 in 2022 and $200,867 in 2021 | 230,924 | | | 219,095 | |
Operating lease right-of-use assets | 147,283 | | | 148,198 | |
| | | |
Goodwill | 288,496 | | | 266,752 | |
Other acquired intangibles, net of accumulated amortization of $119,453 in 2022 and $107,336 in 2021 | 155,161 | | | 154,717 | |
| | | |
Other assets | 51,228 | | | 46,254 | |
| | | |
Total assets | $ | 1,186,059 | | | $ | 1,117,823 | |
| | | |
Liabilities and Shareholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 50,666 | | | $ | 44,837 | |
Accrued expenses | 67,980 | | | 61,621 | |
Other current liabilities | 4,411 | | | 4,614 | |
Current portion of debt and finance lease obligations | 7,891 | | | 6,088 | |
Current portion of operating lease liabilities | 48,611 | | | 47,532 | |
| | | |
Total current liabilities | 179,559 | | | 164,692 | |
| | | |
Finance lease obligations, less current portion | 11,134 | | | 9,571 | |
Long-term debt, less current portion and debt issuance costs | 106,934 | | | 155,466 | |
Operating lease liabilities, less current portion | 102,889 | | | 101,409 | |
Other long-term liabilities | 57,476 | | | 49,624 | |
Deferred income taxes | 45,369 | | | 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 - 26,589,697 in 2022 and 26,968,788 in 2021 | 266 | | | 270 | |
Additional paid-in capital | 267,809 | | | 258,474 | |
Retained earnings | 414,623 | | | 334,910 | |
Total shareholders’ equity | 682,698 | | | 593,654 | |
Total liabilities and shareholders’ equity | $ | 1,186,059 | | | $ | 1,117,823 | |
| | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | |
Forward Air Corporation |
Condensed Consolidated Statements of Comprehensive Income |
(unaudited and in thousands, except per share amounts) |
|
| Three Months Ended |
| September 30, 2022 | | September 30, 2021 |
Operating revenues | $ | 510,023 | | | $ | 419,625 | |
| | | |
Operating expenses: | | | |
Purchased transportation | 229,326 | | | 205,474 | |
Salaries, wages and employee benefits | 90,755 | | | 84,410 | |
Operating leases | 24,965 | | | 20,536 | |
Depreciation and amortization | 12,269 | | | 9,416 | |
Insurance and claims | 12,093 | | | 9,984 | |
Fuel expense | 6,772 | | | 4,457 | |
Other operating expenses | 62,178 | | | 42,872 | |
| | | |
Total operating expenses | 438,358 | | | 377,149 | |
Income from continuing operations | 71,665 | | | 42,476 | |
| | | |
Other expense: | | | |
Interest expense | (1,544) | | | (973) | |
| | | |
Total other expense | (1,544) | | | (973) | |
Income before income taxes | 70,121 | | | 41,503 | |
Income tax expense | 17,988 | | | 11,000 | |
Net income from continuing operations | 52,133 | | | 30,503 | |
Loss from discontinued operation, net of tax | — | | | (6,967) | |
Net income and comprehensive income | $ | 52,133 | | | $ | 23,536 | |
| | | |
Basic net income (loss) per share | | | |
Continuing operations | $ | 1.94 | | | $ | 1.12 | |
Discontinued operation | — | | | (0.26) | |
Net income per basic share | $ | 1.94 | | | $ | 0.86 | |
| | | |
Diluted net income (loss) per share | | | |
Continuing operations | $ | 1.93 | | | $ | 1.12 | |
Discontinued operation | — | | | (0.26) | |
Net income per diluted share | $ | 1.93 | | | $ | 0.86 | |
| | | |
Dividends per share | $ | 0.24 | | | $ | 0.21 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | |
Forward Air Corporation |
Condensed Consolidated Statements of Comprehensive Income |
(unaudited and in thousands, except per share amounts) |
|
| Nine Months Ended |
| September 30, 2022 | | September 30, 2021 |
Operating revenues | $ | 1,492,203 | | | $ | 1,202,498 | |
| | | |
Operating expenses: | | | |
Purchased transportation | 693,648 | | | 605,299 | |
Salaries, wages and employee benefits | 263,194 | | | 243,948 | |
Operating leases | 71,097 | | | 60,073 | |
Depreciation and amortization | 34,994 | | | 28,067 | |
Insurance and claims | 37,257 | | | 30,616 | |
Fuel expense | 20,951 | | | 12,218 | |
Other operating expenses | 166,501 | | | 114,953 | |
| | | |
Total operating expenses | 1,287,642 | | | 1,095,174 | |
Income from continuing operations | 204,561 | | | 107,324 | |
| | | |
Other expense: | | | |
Interest expense | (3,521) | | | (3,461) | |
| | | |
Total other expense | (3,521) | | | (3,461) | |
Income before income taxes | 201,040 | | | 103,863 | |
Income tax expense | 50,791 | | | 25,969 | |
Net income from continuing operations | 150,249 | | | 77,894 | |
Loss from discontinued operation, net of tax | — | | | (12,500) | |
Net income and comprehensive income | $ | 150,249 | | | $ | 65,394 | |
| | | |
Basic net income (loss) per share | | | |
Continuing operations | $ | 5.56 | | | $ | 2.84 | |
Discontinued operation | — | | | (0.46) | |
Net income per basic share1 | $ | 5.56 | | | $ | 2.39 | |
| | | |
Diluted net income (loss) per share | | | |
Continuing operations | $ | 5.53 | | | $ | 2.83 | |
Discontinued operation | — | | | (0.46) | |
Net income per diluted share | $ | 5.53 | | | $ | 2.37 | |
| | | |
Dividends per share | $ | 0.72 | | | $ | 0.63 | |
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, 2022 | | September 30, 2021 |
| |
Operating activities: | | | |
Net income from continuing operations | $ | 150,249 | | | $ | 77,894 | |
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations | | | |
Depreciation and amortization | 34,994 | | | 28,067 | |
| | | |
Change in fair value of earn-out liability | (294) | | | (385) | |
Share-based compensation expense | 8,743 | | | 8,179 | |
Provision for revenue adjustments | 7,302 | | | 5,504 | |
Deferred income tax expense (benefit) | 1,962 | | | (1,384) | |
Other | 417 | | | 406 | |
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses: | | | |
Accounts receivable | (43,172) | | | (49,086) | |
Other receivables | 8,097 | | | (14,218) | |
Other current and noncurrent assets | 6,743 | | | 8,198 | |
Accounts payable, accrued expenses and other long-term liabilities | 21,773 | | | 19,577 | |
Net cash provided by operating activities of continuing operations | 196,814 | | | 82,752 | |
| | | |
Investing activities: | | | |
Proceeds from sale of property and equipment | 1,423 | | | 2,339 | |
Purchases of property and equipment | (25,401) | | | (23,015) | |
Purchases of a business, net of cash acquired | (40,433) | | | (23,053) | |
Net cash used in investing activities of continuing operations | (64,411) | | | (43,729) | |
| | | |
Financing activities: | | | |
Repayments of finance lease obligations | (4,209) | | | (1,445) | |
Proceeds from credit facility | — | | | 45,000 | |
Payments on credit facility | (48,625) | | | — | |
Payment of debt issuance costs | — | | | (119) | |
Payment of earn-out liability | (91) | | | (6,519) | |
Proceeds from issuance of common stock upon stock option exercises | 206 | | | 3,563 | |
Payments of dividends to shareholders | (19,461) | | | (17,270) | |
Repurchases and retirement of common stock | (47,774) | | | (48,989) | |
Proceeds from common stock issued under employee stock purchase plan | 374 | | | 388 | |
Payment of minimum tax withholdings on share-based awards | (3,293) | | | (3,074) | |
Contributions from subsidiary held for sale | — | | | 1,118 | |
Net cash used in financing activities from continuing operations | (122,873) | | | (27,347) | |
Net increase in cash and cash equivalents of continuing operations | 9,530 | | | 11,676 | |
| | | |
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 in cash and cash equivalents | 9,530 | | | 11,676 | |
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 in cash and cash equivalents | 9,530 | | | 11,676 | |
Less: cash at end of period of discontinued operation | — | | | — | |
Cash and cash equivalents at end of period of continuing operations | $ | 46,846 | | | $ | 51,930 | |
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, 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 | |
Net income | — | | | — | | | — | | | 55,430 | | | 55,430 | |
| | | | | | | | | |
Common stock issued under employee stock purchase plan | 5 | | | — | | | 374 | | | — | | | 374 | |
Share-based compensation expense | — | | | — | | | 3,306 | | | — | | | 3,306 | |
Payment of dividends to shareholders | — | | | — | | | 5 | | | (6,497) | | | (6,492) | |
Payment of minimum tax withholdings on share-based awards | (1) | | | — | | | — | | | (39) | | | (39) | |
| | | | | | | | | |
Issuance of share-based awards | 14 | | | — | | | — | | | — | | | — | |
Balance at June 30, 2022 | 26,880 | | | $ | 269 | | | $ | 265,129 | | | $ | 398,952 | | | $ | 664,350 | |
Net income | — | | | — | | | — | | | 52,133 | | | 52,133 | |
| | | | | | | | | |
| | | | | | | | | |
Share-based compensation expense | — | | | — | | | 2,676 | | | — | | | 2,676 | |
Payment of dividends to shareholders | — | | | — | | | 4 | | | (6,471) | | | (6,467) | |
| | | | | | | | | |
Repurchases and retirement of common stock | (290) | | | (3) | | | — | | | (29,991) | | | (29,994) | |
| | | | | | | | | |
Balance at September 30, 2022 | 26,590 | | | $ | 266 | | | $ | 267,809 | | | $ | 414,623 | | | $ | 682,698 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | |
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, 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 its 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 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
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 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 the three and nine months ended September 30, 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 and nine months ended September 30, 2021, the Company recognized $229 and $641, respectively, 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 which the payment was remitted. As of September 30, 2022 and December 31, 2021, the Company recorded a net receivable in the amount of zero 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 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. As of September 30, 2022, the Company recorded a specific reserve in the amount of $235 in order to reduce the receivable to an amount the Company reasonably believes will be collected.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 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 and nine months ended September 30, 2021 is as follows:
| | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | |
| Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 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 | |
Impairment charge | 6,967 | | | 6,967 | |
Total operating expenses | 6,967 | | | 27,498 | |
Loss from discontinued operation | (6,967) | | | (10,411) | |
Loss on sale of business | — | | | (2,860) | |
Loss from discontinued operation before income taxes | (6,967) | | | (13,271) | |
Income tax benefit | — | | | (771) | |
Loss from discontinued operation, net of tax | $ | (6,967) | | | $ | (12,500) | |
| | | |
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 and nine months ended September 30, 2022, the fair value of the earn-out changed by zero and ($294) 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, 2021, the fair value of the earn-out changed by zero and ($333) respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. The one-year period ended in the first quarter of 2022 and the Company paid $91 in the second quarter of 2022 based on the terms of the purchase agreement. As of December 31, 2021, the fair value of the earn-out liability was $385, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2022
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.
In May 2022, the Company acquired certain assets and liabilities of Edgmon Trucking, LLC (“Edgmon”) for $40,433 and a potential earn-out of up to $5,000, based on the achievement of certain profit contribution milestones over a nineteen month period, beginning May 30, 2022. Edgmon, headquartered in Kent, Washington, operates a terminal in Kent and a yard in Seattle, servicing both the Port of Seattle and the Port of Tacoma. The acquisition of Edgmon marks the Company’s first Intermodal location on the West Coast, a key area of expansion in the Intermodal strategic growth plan. The acquisition was financed by cash flows from operations. The results of Edgmon 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.
Fair Value of Assets Acquired and Liabilities Assumed
Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:
| | | | | | | | | | | | | | |
| | BarOle | | Edgmon |
| | November 30, 2021 | | May 30, 2022 |
Tangible assets: | | | | |
| | | | |
Accounts receivable | | $ | 2,481 | | | $ | 4,831 | |
| | | | |
| | | | |
Property and equipment | | 6,464 | | | 613 | |
| | | | |
| | | | |
Total tangible assets | | 8,945 | | | 5,444 | |
Intangible assets: | | | | |
Customer relationships | | 11,120 | | | 17,950 | |
Non-compete agreements | | 221 | | | 465 | |
Goodwill | | 15,418 | | | 17,003 | |
Total intangible assets | | 26,759 | | | 35,418 | |
Total assets acquired | | 35,704 | | | 40,862 | |
| | | | |
Liabilities assumed: | | | | |
Current liabilities | | 268 | | | 429 | |
| | | | |
| | | | |
| | | | |
Total liabilities assumed | | 268 | | | 429 | |
Net assets acquired | | $ | 35,436 | | | $ | 40,433 | |
The preliminary purchase price for BarOle and Edgmon has been allocated to assets acquired and liabilities assumed based on 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 allocations, including the third-party valuations. During the nine months ended September 30, 2022, the Company recorded measurement period adjustments to the provisional amounts initially recorded for acquired property and equipment and acquired customer relationships and non-compete agreements related to the BarOle acquisition. The measurement period adjustments resulted in a $1,113 increase to acquired property and equipment and a combined $5,854 decrease to acquired customer relationships and non-compete agreements, with a corresponding net increase to goodwill. The Company expects to finalize the valuations as soon as practicable, but no later than one year from the respective acquisition dates.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2022
The estimated useful lives of acquired intangible assets as of the acquisition date are summarized in the following table:
| | | | | | | | | | | | | | |
| | Estimated Useful Lives |
| | BarOle | | Edgmon |
Customer relationships | | 8 years | | 7 years |
Non-compete agreements | | 5 years | | 5 years |
5. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill during the nine months ended September 30, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | |
| Expedited Freight | | Intermodal | | Consolidated |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance as of December 31, 2021 | $ | 169,288 | | | $ | 97,464 | | | $ | 266,752 | |
Acquisition | — | | | 17,003 | | | 17,003 | |
Acquisition adjustment | — | | | 4,741 | | | 4,741 | |
Balance as of September 30, 2022 | $ | 169,288 | | | $ | 119,208 | | | $ | 288,496 | |
The Company’s accumulated goodwill impairment is $25,686 related to impairment charges the Company recorded during 2016 pertaining to its Truckload Services reporting unit. The Truckload Services reporting unit operates within the Expedited Freight reportable segment. As of September 30, 2022, approximately $209,353 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 September 30, 2022.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2022
Other Intangible Assets
Changes in the carrying amount of acquired intangible assets during the nine months ended September 30, 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 | | 17,950 | | | 465 | | | — | | | 18,415 | |
Acquisition adjustment | | (5,162) | | | (692) | | | — | | | (5,854) | |
Balance as of September 30, 2022 | | $ | 264,165 | | | $ | 8,949 | | | $ | 1,500 | | | $ | 274,614 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accumulated Amortization |
| | Customer Relationships1 | | Non-Compete Agreements | | Trade Names | | Total |
Balance as of December 31, 2021 | | $ | 99,093 | | | $ | 6,743 | | | $ | 1,500 | | | $ | 107,336 | |
Amortization expense | | 11,507 | | | 610 | | | — | | | 12,117 | |
Balance as of September 30, 2022 | | $ | 110,600 | | | $ | 7,353 | | | $ | 1,500 | | | $ | 119,453 | |
1 Carrying value as of September 30, 2022 and December 31, 2021 is inclusive of $16,501 of accumulated impairment.
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, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
Salaries, wages and employee benefits - continuing operations | $ | 2,355 | | | $ | 2,283 | | | $ | 7,661 | | | $ | 7,015 | |
Salaries, wages and employee benefits - discontinued operation | — | | | — | | | — | | | 16 | |
Total share-based compensation expense | $ | 2,355 | | | $ | 2,283 | | | $ | 7,661 | | | $ | 7,031 | |
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 September 30, 2022, approximately 693 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2022
Stock option transactions during the nine months ended September 30, 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 | (6) | | | 106.29 | |
Outstanding as of September 30 | 397 | | | $ | 65.32 | |
As of September 30, 2022, the total share-based compensation expense related to unvested stock options not yet recognized was $1,687, and the weighted-average period over which it is expected to be recognized is approximately two years.
Restricted Shares
The Company’s primary long-term incentive plan is a restricted share award plan that entitles employees to receive shares 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.
Restricted share transactions during the nine months ended September 30, 2022 on a continuing operations basis were as follows:
| | | | | | | | | | | |
| Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1 | 191 | | | $ | 69.84 | |
Granted | 80 | | | 105.66 | |
Vested | (91) | | | 67.36 | |
Forfeited | (25) | | | 84.20 | |
Outstanding as of September 30 | 155 | | | $ | 87.42 | |
As of September 30, 2022, the total share-based compensation expense related to restricted shares not yet recognized was $9,402, 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2022
Performance award transactions during the nine months ended September 30, 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 | (16) | | | 74.79 | |
Outstanding as of September 30 | 70 | | | $ | 87.74 | |
As of September 30, 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 $3,448, 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 318 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.
Employee stock purchase plan activity and related information was as follows on a continuing operations basis:
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2022 | | September 30, 2021 |
Shares purchased by participants under the ESPP | 5 | | | 5 | |
Average purchase price | $ | 82.76 | | | $ | 68.76 | |
Weighted-average fair value of each purchase right under the ESPP granted¹ | $ | 9.20 | | | $ | 20.99 | |
Share-based compensation expense for ESPP | $ | 42 | | | $ | 118 | |
|
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period. |
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 September 30, 2022, approximately 60 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2022
Director restricted share transactions during the nine months ended September 30, 2022 were as follows:
| | | | | | | | | | | |
| Director Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1 | 15 | | | $ | 93.46 | |
Granted | 15 | | | 93.70 | |
Vested | (15) | | | 93.46 | |
Forfeited | — | | | — | |
Outstanding as of September 30 | 15 | | | $ | 93.70 | |
For the three and nine months ended September 30, 2022, the Company recorded $321 and $1,040, respectively, of share-based compensation expense associated with these grants. For the three and nine months ended September 30, 2021, the Company recorded $318 and $1,046, respectively, of share-based compensation expense associated with these grants. As of September 30, 2022, the total share-based compensation expense related to the restricted shares not yet recognized was $841, and the weighted-average period over which it is expected to be recognized is approximately less than