fwrd-20230630

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 June 30, 2023

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

Commission File No. 000-22490

FORWARD AIR CORPORATION

(Exact name of registrant as specified in its charter)

Tennessee

62-1120025

(State or other jurisdiction of incorporation)

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

1915 Snapps Ferry Road

Building N

Greeneville

37745

(Address of principal executive offices)

(Zip Code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

FWRD

The Nasdaq Stock Market LLC

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

Yes x No ¨

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

Yes x No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ¨ No x

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of August 2, 2023 was 25,695,709.


Table of Contents
Forward Air Corporation

		Page
		Number
	Part I: Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – June 3 0 , 2023 and December 31, 2022	3

	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended June 3 0 , 2023 and 2022	4

	Condensed Consolidated Statements of Comprehensive Income - Six Months Ended Jun e 30, 202 3 and 202 2	5

	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 3 0 , 2023 and 2022	6

	Condensed Consolidated Statements of Shareholders’ Equity – Three and Six Months Ended June 3 0 , 2023 and 2022	7

	Notes to Condensed Consolidated Financial Statements – June 3 0 , 2023	8

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

	Part II: Other Information

Item 1.	Legal Proceedings	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other	47

Item 6.	Exhibits	48

Signatures		49

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)

	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	18,281	$	45,822
Accounts receivable, less allowance of $2,882 in 2023 and $3,158 in 2022	175,968		221,028

Other current assets	21,538		37,465

Total current assets	215,787		304,315

Property and equipment, net of accumulated depreciation and amortization of $233,153 in 2023 and $220,669 in 2022	260,663		249,080
Operating lease right-of-use assets	144,847		141,865

Goodwill	356,763		306,184
Other acquired intangibles, net of accumulated amortization of $132,294 in 2023 and $123,325 in 2022	151,218		154,801

Other assets	55,295		51,831

Total assets	$	1,184,573	$	1,208,076

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	37,085	$	54,601
Accrued expenses	53,265		54,291
Other current liabilities	12,112		3,956
Current portion of debt and finance lease obligations	13,963		9,444
Current portion of operating lease liabilities	52,801		47,106

Total current liabilities	169,226		169,398

Finance lease obligations, less current portion	23,461		15,844
Long-term debt, less current portion and debt issuance costs	119,766		106,588
Operating lease liabilities, less current portion	96,799		98,865
Other long-term liabilities	48,437		59,044
Deferred income taxes	53,275		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 - 25,785,593 in 2023 and 26,461,293 in 2022	258		265
Additional paid-in capital	277,593		270,855
Retained earnings	395,758		436,124
Total shareholders’ equity	673,609		707,244
Total liabilities and shareholders’ equity	$	1,184,573	$	1,208,076

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

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

	Three Months Ended
	June 30, 2023		June 30, 2022
Operating revenues	$	402,182	$	515,219

Operating expenses:
Purchased transportation	181,643		239,490
Salaries, wages and employee benefits	86,686		86,358
Operating leases	26,184		23,459
Depreciation and amortization	14,513		11,595
Insurance and claims	13,360		13,196
Fuel expense	5,274		8,314
Other operating expenses	44,311		57,262

Total operating expenses	371,971		439,674
Income from operations	30,211		75,545

Other expense:
Interest expense, net	(2,585)		(1,193)

Total other expense	(2,585)		(1,193)
Income before income taxes	27,626		74,352
Income tax expense	7,675		18,922


Net income and comprehensive income	$	19,951	$	55,430

Net income per share


Basic	$	0.76	$	2.05




Diluted	$	0.76	$	2.04

Dividends per share	$	0.24	$	0.24

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

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

	Six Months Ended
	June 30, 2023		June 30, 2022
Operating revenues	$	829,248	$	982,180

Operating expenses:
Purchased transportation	366,860		464,322
Salaries, wages and employee benefits	166,206		172,439
Operating leases	53,432		46,132
Depreciation and amortization	28,148		22,725
Insurance and claims	27,142		25,164
Fuel expense	11,058		14,179
Other operating expenses	95,682		104,323

Total operating expenses	748,528		849,284
Income from operations	80,720		132,896

Other expense:
Interest expense, net	(4,940)		(1,977)

Total other expense	(4,940)		(1,977)
Income before income taxes	75,780		130,919
Income tax expense	19,461		32,803


Net income and comprehensive income	$	56,319	$	98,116

Net income per share


Basic	$	2.14	$	3.63




Diluted	$	2.13	$	3.61

Dividends per share	$	0.48	$	0.48

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

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

	Six Months Ended
	June 30, 2023		June 30, 2022

Operating activities:
Net income from operations	$	56,319	$	98,116
Adjustments to reconcile net income from operations to net cash provided by operating activities
Depreciation and amortization	28,148		22,725

Change in fair value of earn-out liability	—		(294)
Share-based compensation expense	6,309		6,067
Provision for revenue adjustments	5,529		2,934
Deferred income tax expense	2,182		1,962
Other	(432)		1,383
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses:
Accounts receivable	38,299		(36,751)
Other receivables	—		7,093
Other current and noncurrent assets	11,123		3,918
Accounts payable and accrued expenses	(17,911)		5,667
Net cash provided by operating activities	129,566		112,820

Investing activities:
Proceeds from sale of property and equipment	3,171		767
Purchases of property and equipment	(17,575)		(18,673)
Purchases of a business, net of cash acquired	(56,703)		(40,433)
Net cash used in investing activities	(71,107)		(58,339)

Financing activities:
Repayments of finance lease obligations	(3,987)		(2,583)
Proceeds from credit facility	45,000		—
Payments on credit facility	(30,750)		(8,250)

Payment of earn-out liability	—		(91)
Proceeds from issuance of common stock upon stock option exercises	—		206
Payments of dividends to shareholders	(12,600)		(12,994)
Repurchases and retirement of common stock	(79,792)		(17,780)
Proceeds from common stock issued under employee stock purchase plan	421		374
Payment of minimum tax withholdings on share-based awards	(4,292)		(3,293)

Net cash used in financing activities	(86,000)		(44,411)
Net (decrease) increase in cash and cash equivalents	(27,541)		10,070






Cash and cash equivalents at beginning of period	45,822		37,316



Cash and cash equivalents at end of period	$	18,281	$	47,386

Non-Cash Transactions:
Equipment acquired under finance leases	$	14,994	$	5,193

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

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

	Common Stock			Additional Paid-in Capital		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2022	26,462	$	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 awards	105	1		(1)		—		—
Balance at March 31, 2023	26,053	$	261	$	274,007	$	411,365	$	685,633
Net income	—	—		—		19,951		19,951

Common stock issued under employee stock purchase plan	4	—		421		—		421
Share-based compensation expense	—	—		3,160		—		3,160
Payment of dividends to shareholders	—	—		5		(6,260)		(6,255)

Repurchases and retirement of common stock	(285)	(3)		—		(29,298)		(29,301)
Issuance of share-based awards	14	—		—		—		—
Balance at June 30, 2023	25,786	$	258	$	277,593	$	395,758	$	673,609


	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

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

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 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.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

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. 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 Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company's Expedited Freight reportable segment.

Intermodal 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. The nineteen month period ended in the second quarter of 2023 and the Company paid zero based on the terms of the purchase agreement. 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)

June 30, 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:


	Edgmon		Land Air
	May 31, 2022		January 31, 2023
Tangible assets:

Accounts receivable	$	4,963	$	—


Property and equipment	613		738


Total tangible assets	5,576		738
Intangible assets:
Customer relationships	13,051		4,513
Non-compete agreements	172		873
Goodwill	22,195		50,443
Total intangible assets	35,418		55,829
Total assets acquired	40,994		56,567

Liabilities assumed:
Current liabilities	1		—



Total liabilities assumed	1		—
Net assets acquired	$	40,993	$	56,567

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

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


	Estimated Useful Lives
	Edgmon	Land Air
Customer relationships	9 years	12 years
Non-compete agreements	5 years	5 years

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

4. Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the six months ended June 30, 2023 are summarized as follows:


	Expedited Freight		Intermodal		Consolidated




Balance as of December 31, 2022	$	169,288	$	136,896	$	306,184
Acquisition	50,443		136		50,579

Balance as of June 30, 2023	$	219,731	$	137,032	$	356,763

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 June 30, 2023, approximately $277,619 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. The results of the Company's goodwill impairment analyses conducted as of June 30, 2023 indicated that no reduction in the carrying amount of the goodwill was required.

Other Intangible Assets

Changes in the carrying amount of acquired intangible assets during the six months ended June 30, 2023 are summarized as follows:


	Gross Carrying Amount
	Customer Relationships1		Non-Compete Agreements		Trade Names		Total
Balance as of December 31, 2022	$	267,870	$	8,756	$	1,500	$	278,126
Acquisition	4,513		873		—		5,386
Balance as of June 30, 2023	$	272,383	$	9,629	$	1,500	$	283,512


	Accumulated Amortization
	Customer Relationships1		Non-Compete Agreements		Trade Names		Total
Balance as of December 31, 2022	$	114,380	$	7,445	$	1,500	$	123,325
Amortization expense	8,643		326		—		8,969
Balance as of June 30, 2023	$	123,023	$	7,771	$	1,500	$	132,294

1 Carrying value as of June 30, 2023 and December 31, 2022 is inclusive of $16,501 of accumulated impairment.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

5. Stock Incentive Plans

Stock Incentive Plan

The Company recorded share-based compensation expense as follows for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022


Total share-based compensation expense	$	2,803	$	2,884	$	5,613	$	5,306

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 June 30, 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 six months ended June 30, 2023 were as follows:


	Stock Options	Weighted-Average Exercise Price
Outstanding as of January 1	376	$	66.13
Granted	55	115.42
Exercised	—	—
Forfeited	(61)	44.97
Outstanding as of June 30	370	$	76.91

As of June 30, 2023, the total share-based compensation expense related to unvested stock options not yet recognized was $2,937, 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)

June 30, 2023

Restricted share transactions during the six months ended June 30, 2023 were as follows:


	Restricted Shares	Weighted-Average Grant Date Fair Value
Outstanding as of January 1	151	$	87.82
Granted	78	114.92
Vested	(74)	81.01
Forfeited	(5)	103.85
Outstanding as of June 30	150	$	104.76

As of June 30, 2023, the total share-based compensation expense related to restricted shares not yet recognized was $12,770, 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 six months ended June 30, 2023 were as follows assuming target levels of performance:


	Performance Awards	Weighted-Average Grant Date Fair Value
Outstanding as of January 1	70	$	87.74
Granted	18	120.27
Additional shares awarded based on performance	4	68.75
Earned	(31)	69.10
Forfeited or unearned	—	—
Outstanding as of June 30	61	$	105.95

As of June 30, 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 $3,720, 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 310 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.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

Employee stock purchase plan activity and related information was as follows:


	Six Months Ended
	June 30, 2023		June 30, 2022
Shares purchased by participants under the ESPP	4		5
Average purchase price	$	94.23	$	82.76
Weighted-average fair value of each purchase right under the ESPP granted¹	$	10.47	$	9.20
Share-based compensation expense for ESPP	$	42	$	42

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 June 30, 2023, approximately 45 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 six months ended June 30, 2023 were as follows:


	Director Restricted Shares	Weighted-Average Grant Date Fair Value
Outstanding as of January 1	15	$	93.70
Granted	15	96.10
Vested	(15)	93.70
Forfeited	—	—
Outstanding as of June 30	15	$	96.10

For the three and six months ended June 30, 2023, the Company recorded $357 and $696, respectively, of share-based compensation expense associated with these grants. For the three and six months ended June 30, 2022, the Company recorded $380 and $719, respectively, of share-based compensation expense associated with these grants. As of June 30, 2023, the total share-based compensation expense related to the restricted shares not yet recognized was $1,226, and the weighted-average period over which it is expected to be recognized is approximately less than one year.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

6. Indebtedness

Long-term debt consisted of the following as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
Credit facility, expires 2026	$	122,750	$	108,500
Debt issuance costs	(359)		(418)
	122,391		108,082

Less: Current portion of long-term debt	(2,625)		(1,494)
Total long-term debt, less current portion	$	119,766	$	106,588

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 June 30, 2023 and December 31, 2022, the Company had $265,166 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 June 30, 2023, the Company was in compliance with the aforementioned covenants.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

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 credit facility was 6.32% and 2.14% for the three months ended June 30, 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 June 30, 2023 and December 31, 2022, outstanding letters of credit totaled $19,834 and $20,034, respectively.

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 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 and six months ended June 30, 2023 and 2022 is as follows:


	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022

Numerator:


Net income attributable to Forward Air	$	19,951	$	55,430	$	56,319	$	98,116



Income allocated to participating securities	(121)		(346)		(296)		(541)

Numerator for basic and diluted net income per share	$	19,830	$	55,084	$	56,023	$	97,575


Denominator:
Denominator for basic net income per share - weighted-average number of common shares outstanding	25,935		26,869		26,144		26,911
Dilutive stock options and performance share awards	100		120		114		136
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding	26,035		26,989		26,258		27,047

Net income per share:


Basic	$	0.76	$	2.05	$	2.14	$	3.63




Diluted	$	0.76	$	2.04	$	2.13	$	3.61

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 and six months ended June 30, 2023 and 2022 are as follows:


	Three Months Ended		Six Months Ended
	June 30, 2023	June 30, 2022	June 30, 2023	June 30, 2022
Anti-dilutive stock options	112	57	101	57
Anti-dilutive performance shares	18	13	14	13
Anti-dilutive restricted shares and deferred stock units	73	—	58	—
Total anti-dilutive shares	203	70	173	70

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

8. Income Taxes

For the six months ended June 30, 2023 and 2022, the Company recorded income tax expense of $19,461 and $32,803, respectively. The effective tax rate of 25.7% for the six months ended June 30, 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 25.1% for the six months ended June 30, 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 June 30, 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 June 30, 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)

June 30, 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 June 30, 2023, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $33,820, compared to its carrying value of $34,799. 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 and second quarters 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 July 25, 2023, the Board declared a quarterly cash dividend of $0.24 per common share that will be paid in the third 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 six months ended June 30, 2023, the Company repurchased through open market transactions 759 shares of common stock for $79,792, or an average of $105.09 per share, and during the six months ended June 30, 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 June 30, 2023, the remaining shares permitted to be repurchased under the 2019 Repurchase Plan were approximately 1,473 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)

June 30, 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

Frequency

Layer

Policy 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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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023

Segment results from operations for the three and six months ended June 30, 2023 and 2022 are as follows:



	Three Months Ended June 30, 2023
	Expedited Freight		Intermodal		Corporate		Eliminations		Consolidated
External revenues	$	337,957	$	64,225	$	—	$	—	$	402,182
Intersegment revenues	39		26		—		(65)		—
Depreciation	7,761		2,245		—		—		10,006
Amortization	1,946		2,561		—		—		4,507
Income (loss) from operations	30,949		4,312		(5,050)		—		30,211
Purchases of property and equipment	10,399		387		—		—		10,786

	Three Months Ended June 30, 2022
	Expedited Freight		Intermodal		Corporate		Eliminations		Consolidated
External revenues	$	408,814	$	106,405	$	—	$	—	$	515,219
Intersegment revenues	43		6		—		(49)		—
Depreciation	6,007		1,644		62		—		7,713
Amortization	1,810		2,072		—		—		3,882
Income (loss) from operations	63,107		15,249		(2,811)		—		75,545
Purchases of property and equipment	8,765		—		—		—		8,765

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Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited and in thousands, except per share data)

June 30, 2023


	Six Months Ended June 30, 2023
	Expedited Freight		Intermodal		Corporate		Eliminations		Consolidated - Continuing Operations
External revenues	$	676,861	$	152,387	$	—	$	—	$	829,248
Intersegment revenues	69		33		—		(102)		—
Depreciation	14,749		4,430		—		—		19,179
Amortization	3,847		5,122		—		—		8,969
Income from operations	63,947		15,515		1,258		—		80,720
Purchases of property and equipment	17,012		563		—		—		17,575

	Six Months Ended June 30, 2022
	Expedited Freight		Intermodal		Corporate		Eliminations		Consolidated - Continuing Operations
External revenues	$	785,340	$	196,840	$	—	$	—	$	982,180
Intersegment revenues	108		11		—		(119)		—
Depreciation	11,679		2,984		101		—		14,764
Amortization	3,619		4,342		—		—		7,961
Income (loss) from operations	110,787		26,395		(4,286)		—		132,896
Purchases of property and equipment	17,721		952		—		—		18,673
Total Assets
As of June 30, 2023	$	737,387	$	282,077	$	165,198	$	(89)	$	1,184,573
As of December 31, 2022	683,386		322,001		202,756		(67)		1,208,076

Revenue from the individual services within the Expedited Freight segment for the three and six months ended June 30, 2023 and 2022 are as follows:







	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022







Expedited Freight revenues:
Network	$	205,762	$	251,872	$	411,693	$	485,572
Truckload	40,432		60,144		82,176		116,052
Final Mile	68,560		73,028		137,917		138,786
Other	23,242		23,813		45,144		45,038
Total	$	337,996	$	408,857	$	676,930	$	785,448


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.

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.

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-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 decreased to 15.6% for the quarter ended June 30, 2023 compared to 18.4% for the quarter ended June 30, 2022 as a result of changes in fuel prices.

Economy

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. 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, decreased in the second quarter of 2023 compared to the second quarter of 2022. Transportation rates continue to decline as shippers in the United States manage through elevated inventory levels amidst slowing economic growth. Consecutive quarters of weak consumer demand have nearly eliminated the challenges from port congestion and transportation equipment shortages. Despite the weak demand, new vessel deliveries continue to add capacity to the market, which suggests excess capacity may persist for several months even though steamship lines continue to rationalize services by reducing capacity where possible. The air freight market has also seen an increase in capacity resulting from increased commercial flight activity to support elevated consumer travel. These trends drove a decline in the volume of freight shipped by our customers in the second quarter of 2023 and is expected to continue into the third quarter of 2023.

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Results from Operations

The following table sets forth our consolidated financial data for the three months ended June 30, 2023 and 2022 (unaudited and in thousands):


	Three Months Ended
	June 30, 2023		June 30, 2022		Change		Percent Change
Operating revenues:
Expedited Freight	$	337,996	$	408,857	$	(70,861)	(17.3)	%
Intermodal	64,251		106,411		(42,160)		(39.6)
Eliminations and other operations	(65)		(49)		(16)		32.7
Operating revenues	402,182		515,219		(113,037)		(21.9)
Operating expenses:
Purchased transportation	181,643		239,490		(57,847)		(24.2)
Salaries, wages, and employee benefits	86,686		86,358		328		0.4
Operating leases	26,184		23,459		2,725		11.6
Depreciation and amortization	14,513		11,595		2,918		25.2
Insurance and claims	13,360		13,196		164		1.2
Fuel expense	5,274		8,314		(3,040)		(36.6)
Other operating expenses	44,311		57,262		(12,951)		(22.6)

Total operating expenses	371,971		439,674		(67,703)		(15.4)
Income (loss) from operations:
Expedited Freight	30,949		63,107		(32,158)		(51.0)
Intermodal	4,312		15,249		(10,937)		(71.7)

Other Operations	(5,050)		(2,811)		(2,239)		79.7
Income from operations	30,211		75,545		(45,334)		(60.0)
Other expense:
Interest expense, net	(2,585)		(1,193)		(1,392)		116.7

Total other expense	(2,585)		(1,193)		(1,392)		116.7
Income from operations before income taxes	27,626		74,352		(46,726)		(62.8)
Income tax expense	7,675		18,922		(11,247)		(59.4)


Net income and comprehensive income	$	19,951	$	55,430	$	(35,479)	(64.0)	%

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Operating Revenues

Operating revenues decreased $113,037, or 21.9%, to $402,182 for the three months ended June 30, 2023 compared to $515,219 for the three months ended June 30, 2022. The decrease was driven primarily by lower revenue from our Expedited Freight segment of $70,861 due to decreased Network and Truckload revenue, and from our Intermodal segment of $42,160. The results for our two reportable segments are discussed in detail in the following sections.

Operating Expenses

Operating expenses decreased $67,703, or 15.4%, to $371,971 for the three months ended June 30, 2023 compared to $439,674 for the three months ended June 30, 2022. The decrease was primarily driven by a decrease in purchased transportation expense of $57,847 in both our Expedited Freight and Intermodal segments and other operating expenses of $12,951 in our Intermodal segment. 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 primarily 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. Other operating expenses decreased primarily due to lower expenses incurred to support the decreased accessorial revenues in our Intermodal segment, maintenance and repairs, and operating supplies, partially offset by higher contract labor and professional fees.

Income from Operations and Segment Operations

Income from continuing operations decreased $45,334, or 60.0%, to $30,211 for the three months ended June 30, 2023 compared to $75,545 for the three months ended June 30, 2022. The decrease was driven by a decrease in income from operations in our Expedited Freight segment of $32,158 and a decrease in our Intermodal segment of $10,937.

Interest Expense

Interest expense was $2,585 for the three months ended June 30, 2023 compared to $1,193 for the three months ended June 30, 2022. The increase in interest expense was due to a higher variable interest rate during the second quarter of 2023. The weighted-average interest rate on the outstanding borrowings under our credit facility was 6.32% and 2.14% during the three months ended June 30, 2023 and 2022, respectively.

Income Taxes

The effective tax rate on a continuing basis for the three months ended June 30, 2023 was 27.8% compared to 25.4% for the three months ended June 30, 2022.

Net Income

As a result of the foregoing factors, net income decreased $35,479, or 64.0%, to $19,951 for the three months ended June 30, 2023 compared to $55,430 for the three months ended June 30, 2022.

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Expedited Freight - Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022

The following table sets forth the financial data of our Expedited Freight segment for the three months ended June 30, 2023 and 2022 (unaudited and in thousands):





	Three Months Ended
	June 30, 2023		Percent of Revenue		June 30, 2022		Percent of Revenue		Change		Percent Change
Operating revenues:
Network1	$	205,762	60.9	%	$	251,872	61.6	%	$	(46,110)	(18.3)	%
Truckload	40,432		12.0		60,144		14.7		(19,712)		(32.8)
Final Mile	68,560		20.3		73,028		17.9		(4,468)		(6.1)
Other	23,242		6.9		23,813		5.8		(571)		(2.4)
Total operating revenues	337,996		100.0		408,857		100.0		(70,861)		(17.3)

Operating expenses:
Purchased transportation	163,798		48.5		212,575		52.0		(48,777)		(22.9)
Salaries, wages and employee benefits	70,360		20.8		69,497		17.0		863		1.2
Operating leases	19,489		5.8		15,933		3.9		3,556		22.3
Depreciation and amortization	9,707		2.9		7,817		1.9		1,890		24.2
Insurance and claims	10,703		3.2		8,311		2.0		2,392		28.8
Fuel expense	2,583		0.8		3,229		0.8		(646)		(20.0)
Other operating expenses	30,407		9.0		28,388		7.0		2,019		7.1

Total operating expenses	307,047		90.8		345,750		84.6		(38,703)		(11.2)
Income from operations	$	30,949	9.2	%	$	63,107	15.4	%	$	(32,158)	(51.0)	%

1 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue.

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Expedited Freight Operating Statistics

	Three Months Ended
	June 30, 2023		June 30, 2022		Percent Change
Business days	64		64		—	%

Tonnage1,2
Total pounds	673,878		730,128		(7.7)
Pounds per day	10,529		11,408		(7.7)

Shipments1,2
Total shipments	842		961		(12.4)
Shipments per day	13.2		15.0		(12.0)

Weight per shipment	801		760		5.4

Revenue per hundredweight3	$	30.79	$	34.75	(11.4)
Revenue per hundredweight, ex fuel3	$	24.08	$	25.89	(7.0)

Revenue per shipment3	$	246.59	$	264.09	(6.6)
Revenue per shipment, ex fuel3	$	192.85	$	196.78	(2.0)

1 In thousands
2 Excludes accessorial, Truckload and Final Mile products
3 Includes intercompany revenue between the Network and Truckload revenue streams

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Operating Revenues

Expedited Freight operating revenues decreased $70,861, or 17.3%, to $337,996 for the three months ended June 30, 2023 from $408,857 for the three months ended June 30, 2022. The decrease was attributable to decreased Network, Truckload, Final Mile and other revenue. Network revenue decreased due to a 7.7% decrease in tonnage and 7.0% decrease in revenue per hundredweight ex fuel as compared to the same period in the prior year. The decrease in tonnage reflects an increase in weight per shipment of 5.4% on 12.4% fewer number of shipments. The decrease in tonnage is due to softer demand for our services driven by the weak freight environment while the increase in weight per shipment was the result of more dense freight in our network driven by a change in the mix of services provided to customers. Fuel surcharge revenue decreased $19,439, or 30% as a result of the decline in the average price of fuel and a decrease in tonnage in the Network. Truckload and Final Mile revenue decreased $19,712 and $4,468, respectively, primarily due to softer demand for our services driven by the weak freight environment. Other revenue, which includes warehousing and terminal handling, decreased $571 as a result of fewer shipments.

Purchased Transportation

Expedited Freight purchased transportation decreased $48,777, or 22.9%, to $163,798 for the three months ended June 30, 2023 from $212,575 for the three months ended June 30, 2022. Purchased transportation was 48.5% of Expedited Freight operating revenues for the three months ended June 30, 2023 compared to 52.0% for the same period in 2022. Expedited Freight purchased transportation includes Leased Capacity Providers and third-party motor carriers and transportation intermediaries, while Company-employed drivers are included in salaries, wages and employee benefits. The decrease in purchased transportation was primarily due to lower volumes in Network, Truckload, and Final Mile and the change in the mix of freight capacity purchased from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers for Network and Truckload Services. For the three months ended June 30, 2023, we purchased 62.1%, 32.7% and 5.3% of our freight capacity from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers, respectively. This compares to 64.5%, 32.3% and 3.2% in the same period in 2022.

Salaries, Wages and Employee Benefits

Expedited Freight salaries, wages and employee benefits increased $863, or 1.2%, to $70,360 for the three months ended June 30, 2023 from $69,497 for the three months ended June 30, 2022. Salaries, wages and employee benefits were 20.8% of Expedited Freight operating revenues for the three months ended June 30, 2023 compared to 17.0% for the same period in 2022. The increase in salaries, wages and employee benefits expense was due to incremental Company drivers hired in the second quarter of 2023 and an increase in salaries and wages, partially offset by a decreased reserve for incentive compensation as compared to the same period in 2022.

Operating Leases

Expedited Freight operating leases increased $3,556, or 22.3%, to $19,489 for the three months ended June 30, 2023 from $15,933 for the three months ended June 30, 2022. Operating leases were 5.8% of Expedited Freight operating revenues for the three months ended June 30, 2023 compared to 3.9% for the same period in 2022. The increase in operating lease expense was primarily due to higher facility expense as a result of new locations in the second quarter of 2023 as compared to the same period in 2022.

Depreciation and Amortization

Expedited Freight depreciation and amortization increased $1,890, or 24.2%, to $9,707 for the three months ended June 30, 2023 from $7,817 for the three months ended June 30, 2022. Depreciation and amortization was 2.9% of Expedited Freight operating revenues for the three months ended June 30, 2023 compared to 1.9% for the same period in 2022. The increase in depreciation and amortization expense was primarily due to an increase in equipment depreciation in the second quarter of 2023 as compared to the same period in 2022.

Insurance and Claims

Expedited Freight insurance and claims increased $2,392, or 28.8%, to $10,703 for the three months ended June 30, 2023 from $8,311 for the three months ended June 30, 2022. Insurance and claims was 3.2% of Expedited Freight operating revenues for the three months ended June 30, 2023 compared to 2.0% for the same period in 2022. The increase in insurance and claims expense was primarily due to an increase in vehicle liability claims and equipment repairs in the second quarter of 2023 as compared to the same period in 2022. See additional discussion over the consolidated change in self-insurance reserves in the "Other Operations" section below.

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Fuel Expense

Expedited Freight fuel expense decreased $646, or 20.0%, to $2,583 for the three months ended June 30, 2023 from $3,229 for the three months ended June&#