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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 March 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-22490
logo.jpg
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee62-1120025
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
1915 Snapps Ferry RoadBuilding NGreenevilleTN37745
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueFWRDThe 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 filerxAccelerated filer¨Non-accelerated filer¨Smaller reporting companyEmerging 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 5, 2023 was 25,958,635.



Table of Contents
Forward Air Corporation
   
  Page
  Number
Part I: Financial Information 
   
Item 1.Financial Statements (Unaudited) 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
Part II: Other Information
   
Item 1.
   
Item 2.
   
Item 3.
   
Item 4.
Item 5.
Item 6.
   

2

Table of Contents

Part I.Financial Information
  
Item 1.Financial Statements (Unaudited).
Forward Air Corporation
Condensed Consolidated Balance Sheets
(unaudited and in thousands, except share and per share amounts)
 March 31,
2023
December 31,
2022
Assets
Current assets:  
Cash and cash equivalents$32,028 $45,822 
Accounts receivable, less allowance of $3,314 in 2023 and $3,158 in 2022
201,385 221,028 
Other current assets24,381 37,465 
Total current assets257,794 304,315 
Property and equipment, net of accumulated depreciation and amortization of $226,026 in 2023 and $220,669 in 2022
252,932 249,080 
Operating lease right-of-use assets150,282 141,865 
Goodwill356,627 306,184 
Other acquired intangibles, net of accumulated amortization of $127,786 in 2023 and $123,325 in 2022
155,726 154,801 
Other assets53,205 51,831 
Total assets$1,226,566 $1,208,076 
Liabilities and Shareholders’ Equity 
Current liabilities:  
Accounts payable$42,994 $54,601 
Accrued expenses52,807 54,291 
Other current liabilities6,207 3,956 
Current portion of debt and finance lease obligations11,619 9,444 
Current portion of operating lease liabilities52,143 47,106 
Total current liabilities165,770 169,398 
Finance lease obligations, less current portion18,328 15,844 
Long-term debt, less current portion and debt issuance costs150,681 106,588 
Operating lease liabilities, less current portion102,697 98,865 
Other long-term liabilities50,507 59,044 
Deferred income taxes52,950 51,093 
Shareholders’ equity:  
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued or outstanding in 2023 and 2022
  
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 26,052,877 in 2023 and 26,461,293 in 2022
261 265 
Additional paid-in capital274,007 270,855 
Retained earnings411,365 436,124 
Total shareholders’ equity685,633 707,244 
Total liabilities and shareholders’ equity$1,226,566 $1,208,076 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3

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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,
2023
March 31,
2022
Operating revenues$427,066 $466,961 
Operating expenses: 
Purchased transportation185,217 224,832 
Salaries, wages and employee benefits79,520 86,081 
Operating leases27,248 22,673 
Depreciation and amortization13,635 11,130 
Insurance and claims13,782 11,968 
Fuel expense5,784 5,865 
Other operating expenses51,371 47,061 
Total operating expenses376,557 409,610 
Income from operations50,509 57,351 
Other expense: 
Interest expense, net(2,355)(784)
Total other expense(2,355)(784)
Income before income taxes48,154 56,567 
Income tax expense11,786 13,881 
Net income and comprehensive income $36,368 $42,686 
Net income per share
Basic $1.37 $1.57 
Diluted$1.37 $1.57 
Dividends per share$0.24 $0.24 


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


4

Table of Contents

Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited and in thousands)
 Three Months Ended
 March 31,
2023
March 31,
2022
 
Operating activities:
Net income from operations$36,368 $42,686 
Adjustments to reconcile net income from operations to net cash provided by operating activities
Depreciation and amortization13,635 11,130 
Change in fair value of earn-out liability (294)
Share-based compensation expense3,149 2,761 
Provision for revenue adjustments2,157 1,304 
Deferred income tax expense1,857 1,643 
Other(300)132 
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses:
Accounts receivable16,669 (30,278)
Other receivables 3,609 
Other current and noncurrent assets11,422 13,818 
Accounts payable and accrued expenses(18,964)15,975 
Net cash provided by operating activities65,993 62,486 
Investing activities:
Proceeds from sale of property and equipment1,815 511 
Purchases of property and equipment(6,789)(9,908)
Purchases of a business, net of cash acquired(56,567) 
Net cash used in investing activities(61,541)(9,397)
Financing activities:
Repayments of finance lease obligations(2,118)(1,070)
Proceeds from credit facility45,000  
Payments on credit facility (375)
Proceeds from issuance of common stock upon stock option exercises 206 
Payments of dividends to shareholders(6,345)(6,502)
Repurchases and retirement of common stock(50,491)(17,780)
Payment of minimum tax withholdings on share-based awards(4,292)(3,254)
Net cash used in financing activities(18,246)(28,775)
Net (decrease) increase in cash and cash equivalents(13,794)24,314 
Cash and cash equivalents at beginning of period 45,822 37,316 
Cash and cash equivalents at end of period$32,028 $61,630 

 The accompanying notes are an integral part of the condensed consolidated financial statements.
5

Table of Contents



Forward Air Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited and in thousands)
 Common StockAdditional Paid-in
Capital
Retained Earnings
Total Shareholders’ Equity
 SharesAmount
Balance at December 31, 202226,462 $265 $270,855 $436,124 $707,244 
Net income— — — 36,368 36,368 
Share-based compensation expense— — 3,149 — 3,149 
Payment of dividends to shareholders— — 4 (6,349)(6,345)
Payment of minimum tax withholdings on share-based awards(40)— — (4,292)(4,292)
Repurchases and retirement of common stock(474)(5)— (50,486)(50,491)
Issuance of share-based awards105 1 (1)—  
Balance at March 31, 202326,053 $261 $274,007 $411,365 $685,633 

 Common StockAdditional Paid-in
Capital
Retained Earnings
Total Shareholders’ Equity
 SharesAmount
Balance at December 31, 202126,969 $270 $258,474 $334,910 $593,654 
Net income— — — 42,686 42,686 
Stock options exercised3 — 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 awards96 1 (1)—  
Balance at March 31, 202226,862 $269 $261,444 $350,058 $611,771 

The accompanying notes are an integral part of the condensed consolidated financial statements.
6

Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023

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, Canada, and Mexico.

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 services.

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, 2022. Results for interim periods are not necessarily indicative of the results for the year.

2.     Revenue Recognition

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

The Company generates revenue from the delivery of a shipment and the completion of related services. Revenue for the delivery of a shipment is recorded over time to coincide with when customers simultaneously receive and consume the benefits of the delivery services. Accordingly, revenue billed to a customer for the transportation of freight are recognized over the transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a shipment based on the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of a reporting period. The determination of the transit period and how much of it has been completed as of a given reporting date may require the Company to make judgments that impact the timing of revenue recognized. For delivery of shipments with a pick-up date in one reporting period and a delivery date in another reporting period, the Company recognizes revenue based on relative transit time in each reporting period. A portion of the total revenue to be billed to the customer after completion of a delivery is recognized in each reporting period based on the percentage of total transit time that has been completed at the end of the 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
7

Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
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.    Acquisitions

Expedited Freight Acquisitions

In January 2023, the Company acquired certain assets of Land Air Express, Inc. (“Land Air”) for $56,567. Land Air, headquartered in Bowling Green, Kentucky, offers a variety of less-than-truckload services including guaranteed, standard, exclusive, same day, hot shot and pickup and delivery, and operates in over 25 terminals across the United States. The acquisition of Land Air will accelerate the expansion of the Company's national terminal footprint, particularly in the middle part of the United States, and is expected to strategically position the Company to better meet the current and future needs of customers. The acquisition was funded using cash flow from operations and proceeds from the Company's credit facility. The results of Land Air have been included in the Companys Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company's Expedited Freight reportable segment.

Intermodal Acquisitions

In May 2022, the Company acquired certain assets and liabilities of Edgmon Trucking, LLC (“Edgmon”) for $40,993 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 31, 2022. The estimated fair value of the earn-out liability on the date of acquisition was immaterial. The fair value was based on the estimated certain profit contribution during the nineteen month period and was calculated using the option pricing method. 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 funded using 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.

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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
Fair Value of Assets Acquired and Liabilities Assumed

Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:
EdgmonLand Air
May 31, 2022January 31, 2023
Tangible assets:
Accounts receivable$4,963 $ 
Property and equipment613 738 
Total tangible assets5,576 738 
Intangible assets:
Customer relationships13,051 4,513 
Non-compete agreements172 873 
Goodwill22,195 50,443 
Total intangible assets35,418 55,829 
Total assets acquired40,994 56,567 
Liabilities assumed:
Current liabilities1  
Total liabilities assumed1  
Net assets acquired$40,993 $56,567 

The preliminary purchase price for Edgmon and Land Air have 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 valuations 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 are summarized in the following table:
Estimated Useful Lives
EdgmonLand Air
Customer relationships9 years12 years
Non-compete agreements5 years5 years
    


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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023

4.    Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the three months ended March 31, 2023 are summarized as follows:
Expedited FreightIntermodalConsolidated
Balance as of December 31, 2022$169,288 $136,896 $306,184 
Acquisition50,443  50,443 
Balance as of March 31, 2023$219,731 $136,896 $356,627 

The Companys 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 March 31, 2023, approximately $277,484 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, 2023.

Other Intangible Assets

Changes in the carrying amount of acquired intangible assets during the three months ended March 31, 2023 are summarized as follows:

Gross Carrying Amount
Customer Relationships1
Non-Compete AgreementsTrade NamesTotal
Balance as of December 31, 2022$267,870 $8,756 $1,500 $278,126 
Acquisition4,513 873  5,386 
Balance as of March 31, 2023$272,383 $9,629 $1,500 $283,512 

Accumulated Amortization
Customer Relationships1
Non-Compete AgreementsTrade NamesTotal
Balance as of December 31, 2022$114,380 $7,445 $1,500 $123,325 
Amortization expense4,306 155  4,461 
Balance as of March 31, 2023$118,686 $7,600 $1,500 $127,786 

1 Carrying value as of March 31, 2023 and December 31, 2022 is inclusive of $16,501 of accumulated impairment.



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Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
5.    Stock Incentive Plans

Stock Incentive Plan

The Company recorded share-based compensation expense as follows for the three months ended March 31, 2023 and 2022:
Three Months Ended
March 31,
2023
March 31,
2022
Total share-based compensation expense$2,810 $2,422 

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, 2023, approximately 564 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, 2023 were as follows:

Stock OptionsWeighted-Average Exercise Price
Outstanding as of January 1376 $66.13 
Granted55 115.42 
Exercised  
Forfeited(61)44.97 
Outstanding as of March 31370 $76.91 

As of March 31, 2023, the total share-based compensation expense related to unvested stock options not yet recognized was $3,316, 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.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
Restricted share transactions during the three months ended March 31, 2023 were as follows:
Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of January 1151 $87.82 
Granted76 115.14 
Vested(74)81.01 
Forfeited(2)103.36 
Outstanding as of March 31151 $104.74 

As of March 31, 2023, the total share-based compensation expense related to restricted shares not yet recognized was $14,613, 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, 2023 were as follows assuming target levels of performance:
Performance AwardsWeighted-Average Grant Date Fair Value
Outstanding as of January 170 $87.74 
Granted18 120.27 
Additional shares awarded based on performance4 68.75 
Earned(31)69.10 
Forfeited or unearned  
Outstanding as of March 3161 $105.95 

As of March 31, 2023, 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 $4,345, 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 314 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, 2023.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
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, 2023, 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 earlier 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, 2023 were as follows:
Director Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of January 115 $93.70 
Granted  
Vested  
Forfeited  
Outstanding as of March 3115 $93.70 

For both the three months ended March 31, 2023 and 2022, the Company recorded $339 of share-based compensation expense associated with these grants. As of March 31, 2023, the total share-based compensation expense related to the restricted shares not yet recognized was $154, and the weighted-average period over which it is expected to be recognized is approximately less than one year.

6.    Indebtedness

Long-term debt consisted of the following as of March 31, 2023 and December 31, 2022:

March 31, 2023December 31, 2022
Credit facility, expires 2026$153,500 $108,500 
Debt issuance costs(389)(418)
153,111 108,082 
Less: Current portion of long-term debt(2,430)(1,494)
Total long-term debt, less current portion$150,681 $106,588 
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Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
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 March 31, 2023 and December 31, 2022, the Company had $234,966 and $279,966, respectively, 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, 2023, 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 5.96% and 1.44% for the three months ended March 31, 2023, and 2022, respectively.

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, 2023 and December 31, 2022, 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, 2023

7.    Net Income Per Share

Basic net income per common share is computed by dividing net income 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 per common share pursuant to the two-class method. Diluted net income 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 attributable to Forward Air and weighted-average common shares outstanding for purposes of calculating basic and diluted net income per share during the three months ended March 31, 2023 and 2022 is as follows:
 Three Months Ended
March 31,
2023
March 31,
2022
Numerator:  
Net income attributable to Forward Air$36,368 $42,686 
Income allocated to participating securities(185)(248)
Numerator for basic and diluted net income per share$36,183 $42,438 
Denominator:  
Denominator for basic net income per share - weighted-average number of common shares outstanding26,350 26,947 
Dilutive stock options and performance share awards129 153 
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding26,479 27,100 
Net income per share:
Basic$1.37 $1.57 
Diluted$1.37 $1.57 

The number of shares that were not included in the calculation of net income per diluted share because to do so would have been anti-dilutive for the three months ended March 31, 2023 and 2022 are as follows:
Three Months Ended
March 31,
2023
March 31,
2022
Anti-dilutive stock options112 64 
Anti-dilutive performance shares18 14 
Anti-dilutive restricted shares and deferred stock units74  
Total anti-dilutive shares204 78 

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Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023


8.    Income Taxes

For the three months ended March 31, 2023 and 2022, the Company recorded income tax expense of $11,786 and $13,881, respectively. The effective tax rate of 24.5% for the three months ended March 31, 2023 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 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 Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both March 31, 2023 and December 31, 2022, the Company had $198 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. As of both March 31, 2023 and December 31, 2022, the Company had accrued interest and penalties related to unrecognized tax benefits of $85. 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 2015.

The sale of the Pool Distribution business in February 2021 resulted in a capital loss in the amount of $4,253, which expires in 2026. The Company concluded that it was more likely than not that the capital loss carryforward will not be realized and therefore, established a valuation allowance of $4,253 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, 2023

9.    Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, 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 approximates 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, 2023, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $27,215, compared to its carrying value of $27,517. As of December 31, 2022, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $23,210, compared to its carrying value of $23,794.


10.    Shareholders’ Equity

Cash Dividends

During the first quarter of 2023, the Board declared and the Company has paid a quarterly cash dividend of $0.24 per common share. During each quarter of 2022, the Company’s Board of Directors declared and the Company has paid a quarterly cash dividend of $0.24 per common share

On April 28, 2023, the Board declared a quarterly cash dividend of $0.24 per common share that will be paid in the second quarter of 2023.

Share Repurchase Program

On February 5, 2019, the Board of Directors 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, 2023, the Company repurchased through open market transactions 474 shares of common stock for $50,491, or an average of $105.38 per share, and 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. 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, 2023, the remaining shares permitted to be repurchased under the 2019 Repurchase Plan were approximately 1,759 shares.

11.    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 our 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, 2023
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 up to $10,000 (in thousands):

Company
Risk Retention
FrequencyLayerPolicy Term
Expedited Freight¹
LTL business$5,000 Occurrence/Accident²
$0 to $5,000
10/1/2022 to 10/1/2023
Truckload business$2,000 Occurrence/Accident²
$0 to $2,000
10/1/2022 to 10/1/2023
LTL, Truckload and Intermodal businesses$5,000 Policy Term Aggregate³
$5,000 to $10,000
10/1/2022 to 10/1/2023
Intermodal$1,000 Occurrence/Accident²
$0 to $1,000
10/1/2022 to 10/1/2023
¹ Excluding the Final Mile business, which is primarily a brokered service.
² For each and every accident/incident, the Company is responsible for damages and defense up to these amounts, regardless of the number of claims associated with any accident/incident.
³ During the Policy Term, the Company is responsible for damages and defense within the stated Layer up to the stated, aggregate amount of Risk Retention before insurance will continue.

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.

12.    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, 2022, 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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Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2023
Segment results from operations for the three months ended March 31, 2023 and 2022 are as follows:
 Three Months Ended March 31, 2023
 Expedited FreightIntermodalCorporateEliminationsConsolidated
External revenues$338,904 $88,162 $ $— $427,066 
Intersegment revenues30 7  (37)— 
Depreciation6,988 2,186   9,174 
Amortization1,901 2,560   4,461 
Income from operations32,998 11,203 6,308  50,509 
Purchases of property and equipment6,613 176   6,789 
 Three Months Ended March 31, 2022
 Expedited FreightIntermodalCorporateEliminationsConsolidated
External revenues$376,526 $90,435 $ $— $466,961 
Intersegment revenues65 5  (70)— 
Depreciation5,673 1,340 39  7,052 
Amortization1,808 2,270   4,078 
Income (loss) from operations47,680 11,146 (1,475) 57,351 
Purchases of property and equipment8,956 952   9,908 
Total Assets
As of March 31, 2023$750,838 $296,624 $179,178 $(74)$1,226,566 
As of December 31, 2022683,386 322,001 202,756 (67)1,208,076 

Revenue from the individual services within the Expedited Freight segment for the three months ended March 31, 2023 and 2022 are as follows:

 Three Months Ended
 March 31,
2023
March 31,
2022
Expedited Freight revenues: 
Network$205,931 $233,700 
Truckload41,744 55,908 
Final Mile69,357 65,758 
Other21,902 21,225 
Total$338,934 $376,591 


19


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

Overview
 
We are a leading asset-light freight provider of transportation services, including LTL, truckload, final mile and intermodal drayage services across the United States and in Canada and Mexico. We offer premium services that typically require precision execution, such as expedited transit, delivery during tight time windows and special handling. We utilize an asset-light strategy to minimize our investments in equipment and facilities and to reduce our capital expenditures.

Our services are classified into two reportable segments: Expedited Freight and Intermodal.

Our Expedited Freight segment provides expedited regional, inter-regional and national LTL services. Expedited Freight also offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. We plan to grow our LTL and final mile geographic footprints through greenfield start-ups as well as through acquisitions.

Our 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 CFS warehouse and handling services, and in select locations, linehaul and LTL services. We plan to grow our Intermodal geographic footprint through acquisitions as well as greenfield start-ups where no suitable acquisition is available.

Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound or shipment for the freight shipped or moved through our network. Additionally, our earnings depend on the growth of other services, such as LTL pickup and delivery, which will allow us to maintain revenue growth in a challenging freight environment. We continue to focus on creating synergies across our services, particularly with services offered in our Expedited Freight reportable segment. Synergistic opportunities include the ability to share resources, in particular our fleet resources.

We monitor and analyze a number of key operating statistics in order to manage our business and evaluate our financial and operating performance. These key operating statistics are defined below and are referred to throughout the discussion of the financial results of our Expedited Freight and Intermodal reportable segments. Our key operating statistics should not be interpreted as better measurements of our results than income from operations as determined under U.S. generally accepted accounting principles.

Within our Expedited Freight reportable segment, our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing LTL network. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, pickup and delivery (“P&D”) stops per hour, P&D shipments per hour and door pounds handled per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. Revenue per hundredweight is also a commonly-used indicator for general pricing trends in the LTL industry and can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. Therefore, changes in revenue per hundredweight may not necessarily indicate actual changes in underlying base rates. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of the petroleum-based products used in our operations and is indexed to diesel fuel prices published by the U.S. Department of Energy. The impact of fuel on our results of operations depends on the relationship between the applicable surcharge, the fuel efficiency of our Company drivers, and the load factor achieved by our operation. Fluctuations in fuel prices in either direction could have a positive or negative impact on our margins, particularly in our LTL business where the weight of a shipment subject to the fuel surcharge on a given trailer can vary materially. We believe our yield management process focused on account level profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to grow profitably.

The key operating statistics necessary to understand the operating results of our Expedited Freight reportable segment are described below in more detail:

Tonnage - Total weight of shipments in pounds. The level of freight tonnage is affected by economic cycles and conditions, customers’ business cycles, changes in customers’ business practices and capacity in the truckload market.
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Weight Per Shipment - Total pounds divided by the number of shipments. Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight.

Revenue Per Hundredweight - Network revenue per every 100 pounds of shipment weight. Our LTL transportation services are generally priced based on weight, commodity, and distance. Our pricing policies are reflective of the services we provide, and can be influenced by competitive market conditions. Changes in the freight profile factors such as average shipment size, average length of haul, freight density, and customer and geographic mix can impact the revenue per hundredweight. Fuel surcharges and intercompany revenue between Network and Truckload are included in this measurement.

Revenue Per Shipment - Network revenue divided by the number of shipments. Fuel surcharges and intercompany revenue between Network and Truckload are included in this measurement.

Average Length of Haul - Total miles between origin and destination service centers for all shipments, with miles based on the size of shipments. Length of haul is used to analyze our tonnage and pricing trends for shipments with similar characteristics. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight.

Within our Intermodal reportable segment, our primary revenue focus is to increase the number of shipments. The key operating statistic necessary to understand the operating results of our Intermodal reportable segment is described below in more detail:

Drayage Revenue Per Shipment - Intermodal revenue divided by the number of drayage shipments. Revenue derived from container freight station warehouse and handling, and linehaul and LTL services is excluded from this measurement. Fuel surcharges and accessorial charges are included in this measurement.

Trends and Developments

Expedited Freight Acquisition

In January 2023, we acquired certain assets of Land Air Express, Inc. (“Land Air”) for $56,567. Land Air, headquartered in Bowling Green, Kentucky, offers a variety of less-than-truckload services including guaranteed, standard, exclusive, same day, hot shot and pickup and delivery, and operates in over 25 terminals across the United States. The acquisition of Land Air will accelerate the expansion of our national terminal footprint, particularly in the middle part of the United States, and it will strategically position us to better meet the current and future needs of customers.The acquisition was funded using cash flow from operations and proceeds from our credit facility. The results of Land Air have been included in our Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in our Expedited Freight reportable segment.

COVID-19

Our business is highly susceptible to changes in the economic conditions. Our products and services are directly tied to the production and sale of goods and, more generally, to the North American economy. The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide and created significant volatility and disruption to the financial markets and supply chains worldwide.

Although our operations have returned to pre-COVID levels, should we experience another COVID-19-like virus outbreak in the future with similar restrictions, we would anticipate a similar impact on our business.

Fuel

We depend heavily upon the availability of adequate diesel fuel supplies, and recently, fuel availability and prices have fluctuated significantly. Fuel availability and prices can be impacted by factors beyond our control, such as natural or man-
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made disasters, adverse weather conditions, political events, economic sanctions imposed against oil-producing countries or specific industry participants, disruptions or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, terrorist activities, armed conflict, tariffs, sanctions, other changes to trade agreements and world supply and demand imbalance. Through our fuel surcharge programs, we have been able to mitigate the impact of fluctuations in fuel prices. Our fuel surcharge rates are set weekly based on the national average for fuel prices as published by the U.S. Department of Energy and our fuel surcharge table. In periods of changing fuel prices, our fuel surcharges vary by different degrees and may not fully offset fuel price fluctuations or may result in higher than expected increases in revenue. Fuel shortages, changes in fuel prices, and the potential volatility in fuel surcharge revenue may impact our results of operations and overall profitability. Fuel surcharge revenue as a percentage of operating revenues increased to 15.8% for the quarter ended March 31, 2023 compared to 14.7% for the quarter ended March 31, 2022 as a result of changes in fuel prices.

Economy

Participants in the transportation industry have historically experienced cyclical fluctuations in financial results due to economic recessions, downturns in the business cycles of customers, volatility in the prices charged by third-party carriers, interest rate fluctuations and other U.S. and global macroeconomic developments. During economic downturns, reductions in overall demand for transportation services will likely reduce demand for our services and exert downward pressures on our rates and margins. In periods of strong economic growth, overall demand may exceed the available supply of transportation resources. While this may present an opportunity to increase economies of scale in our network and enhanced pricing and margins, these benefits may be lessened by increased network congestion and operating inefficiencies.

Like other providers of freight transportation services, our business has been impacted by the macroeconomic conditions of the past year. Industry freight volumes, as measured by the Cass Freight Index, were approximately flat in the first quarter of 2023 compared to the first quarter of 2022. The balance of supply and demand in the United States transportation market continued to shift toward a market with excess carrier capacity in the first quarter of 2023. Transportation rates continue to decline as shippers in the United States manage through elevated inventory levels amidst slowing economic growth. In response to this slowing demand, steamship lines continue to rationalize services by reducing capacity where possible, which has allowed port congestion to ease. The slowdown of consumer demand has also had a significant impact on the air freight market. Air freight volumes have significantly declined, also as a consequence of higher inventory levels and declining consumer demand. These trends drove a decline in the volume of freight shipped by our customers in the first quarter of 2023 and is expected to continue into the second quarter of 2023.



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Results from Operations

The following table sets forth our consolidated financial data for the three months ended March 31, 2023 and 2022 (unaudited and in thousands):

Three Months Ended
March 31,
2023
March 31,
2022
ChangePercent Change
Operating revenues:
Expedited Freight$338,934 $376,591 $(37,657)(10.0)%
Intermodal88,169 90,440 (2,271)(2.5)
Eliminations and other operations(37)(70)33 (47.1)
Operating revenues427,066 466,961 (39,895)(8.5)
Operating expenses:
Purchased transportation185,217 224,832 (39,615)(17.6)
Salaries, wages, and employee benefits79,520 86,081 (6,561)(7.6)
Operating leases27,248 22,673 4,575 20.2 
Depreciation and amortization13,635 11,130 2,505 22.5 
Insurance and claims13,782 11,968 1,814 15.2 
Fuel expense5,784 5,865 (81)(1.4)
Other operating expenses51,371 47,061 4,310 9.2 
Total operating expenses376,557 409,610 (33,053)(8.1)
Income (loss) from operations:
Expedited Freight32,998 47,680 (14,682)(30.8)
Intermodal11,203 11,146 57 0.5 
Other Operations6,308 (1,475)7,783 (527.7)
Income from operations50,509 57,351 (6,842)(11.9)
Other expense:
Interest expense(2,355)(784)(1,571)200.4 
Total other expense(2,355)(784)(1,571)200.4 
Income from operations before income taxes48,154 56,567 (8,413)(14.9)
Income tax expense11,786 13,881 (2,095)(15.1)
Net income and comprehensive income$36,368 $42,686 $(6,318)(14.8)%

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Revenues

Operating revenues decreased $39,895, or 8.5%, to $427,066 for the three months ended March 31, 2023 compared to $466,961 for the three months ended March 31, 2022. The decrease was driven primarily by decreased revenue from our Expedited Freight segment of $37,657 due to decreased Network and Truckload revenue, and from our Intermodal segment of $2,271 driven by decreased drayage shipments. The results for our two reportable segments are discussed in detail in the following sections.

Operating Expenses
Operating expenses decreased $33,053, or 8.1%, to $376,557 for the three months ended March 31, 2023 compared to $409,610 for the three months ended March 31, 2022. The decrease was primarily driven by a decrease in purchased transportation expense of $39,615 and salaries, wages and employee benefits of $6,561 offset by an increase in operating leases of $4,575 and other operating expenses of $4,310 in both our Expedited Freight and Intermodal segments. Purchased transportation expense includes our independent contractor fleet owners and owner-operators, who lease their equipment to our motor carrier (“Leased Capacity Providers”), third-party motor carriers and capacity secured by transportation intermediaries, while Company-employed drivers are included in salaries, wages and employee benefits. Purchased transportation expense decreased due to the utilization of less third-party motor carriers over the same period in the prior year combined with a lower third-party motor carrier cost per mile. Salaries, wages and employee benefits decreased primarily due to a decrease in the accrual for an incentive plan established for certain employees in 2021. Operating leases increased primarily due to higher facility and equipment lease expense. Other operating expenses increased due to higher contract labor, travel and entertainment, software license fees and professional fees, partially offset by lower expenses incurred to support the decreased container rental revenues in our Intermodal segment.
Income from Operations and Segment Operations
Income from continuing operations decreased $6,842, or 11.9%, to $50,509 for the three months ended March 31, 2023 compared to $57,351 for the three months ended March 31, 2022. The decrease was primarily driven by a decrease in income from operations in our Expedited Freight segment of $14,682, partially offset by an increase in our Intermodal segment of $57 and Other Operations of $7,783.

Interest Expense

Interest expense was $2,355 for the three months ended March 31, 2023 compared to $784 for the three months ended March 31, 2022. The increase in interest expense was due to a higher variable interest rate during the first quarter of 2023. The interest rate on the outstanding borrowings under our credit facility was 5.96% and 1.44% during the three months ended March 31, 2023 and 2022, respectively.

Income Taxes

The effective tax rate on a continuing basis for both the three months ended March 31, 2023 and 2022 was 24.5%.
Net Income

As a result of the foregoing factors, net income decreased $6,318, or 14.8%, to $36,368 for the three months ended March 31, 2023 compared to $42,686 for the three months ended March 31, 2022.

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Expedited Freight - Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

The following table sets forth the financial data of our Expedited Freight segment for the three months ended March 31, 2023 and 2022 (unaudited and in thousands):

Three Months Ended
 March 31,
2023
Percent of RevenueMarch 31,
2022
Percent of RevenueChangePercent Change
Operating revenues:
Network1
$205,931 60.8 %$233,700 62.1 %$(27,769)(11.9)%
Truckload41,744 12.3 55,908 14.8 (14,164)(25.3)
Final Mile69,357 20.5 65,758 17.5 3,599 5.5 
Other21,902 6.5 21,225 5.6 677 3.2 
Total operating revenues338,934 100.0 376,591 100.0 (37,657)(10.0)
Operating expenses:
Purchased transportation165,240 48.8 200,034 53.1 (34,794)(17.4)
Salaries, wages and employee benefits68,791 20.3 68,220 18.1 571 0.8 
Operating leases18,913 5.6 15,731 4.2 3,182 20.2 
Depreciation and amortization8,889 2.6 7,481 2.0 1,408 18.8 
Insurance and claims9,743 2.9 8,751 2.3 992 11.3 
Fuel expense2,611 0.8 2,650 0.7 (39)(1.5)
Other operating expenses31,749 9.4 26,044 6.9 5,705 21.9 
Total operating expenses305,936 90.3 328,911 87.3 (22,975)(7.0)
Income from operations$32,998 9.7