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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, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-22490
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
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| Tennessee | | | | 62-1120025 |
(State or other jurisdiction of incorporation) | | (I.R.S. Employer Identification No.) |
1915 Snapps Ferry Road | Building N | Greeneville | TN | | 37745 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (423) 636-7000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 par value | | FWRD | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of May 13, 2024 was 26,438,420.
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Table of Contents |
Forward Air Corporation |
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| Part I: Financial Information | |
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Item 1. | Financial Statements (Unaudited) | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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| Part II: Other Information | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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Part I. | Financial Information |
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Item 1. | Financial Statements (Unaudited). |
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Forward Air Corporation |
Condensed Consolidated Balance Sheets |
(unaudited and in thousands, except share and per share amounts) |
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| March 31, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 152,042 | | | $ | 121,969 | |
Restricted cash and restricted cash equivalents | 20,228 | | | 39,604 | |
Accounts receivable, less allowance of $3,644 in 2024 and $2,206 in 2023 | 351,813 | | | 153,267 | |
Other receivables | 1,539 | | | 5,408 | |
Prepaid expenses | 39,512 | | | 25,682 | |
Other current assets | 4,299 | | | 1,098 | |
| | | |
Total current assets | 569,433 | | | 347,028 | |
| | | |
Noncurrent restricted cash equivalents | — | | | 1,790,500 | |
Property and equipment, net of accumulated depreciation and amortization of $263,856 in 2024 and $250,185 in 2023 | 327,706 | | | 258,095 | |
Operating lease right-of-use assets | 334,262 | | | 111,552 | |
| | | |
Goodwill | 1,379,180 | | | 278,706 | |
Other acquired intangibles, net of accumulated amortization of $145,141 in 2024 and $127,032 in 2023 | 1,264,428 | | | 134,789 | |
Other assets | 84,251 | | | 58,863 | |
| | | |
Total assets | $ | 3,959,260 | | | $ | 2,979,533 | |
| | | |
Liabilities and Shareholders' Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 130,646 | | | $ | 45,430 | |
Accrued expenses | 118,955 | | | 62,948 | |
Other current liabilities | 73,461 | | | 71,727 | |
Current portion of debt and finance lease obligations | 28,134 | | | 12,645 | |
Current portion of operating lease liabilities | 93,645 | | | 44,344 | |
| | | |
Total current liabilities | 444,841 | | | 237,094 | |
| | | |
Finance lease obligations, less current portion | 34,306 | | | 26,736 | |
Long-term debt, less current portion | 1,664,107 | | | — | |
Long-term debt held in escrow | — | | | 1,790,500 | |
Operating lease liabilities, less current portion | 246,956 | | | 71,598 | |
Liabilities under tax receivable agreement | 13,270 | | | — | |
Other long-term liabilities | 45,536 | | | 47,144 | |
Deferred income taxes | 177,806 | | | 42,200 | |
| | | |
| | | |
Shareholders' equity: | | | |
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued or outstanding in 2024 and 2023 | — | | | — | |
Preferred stock, Class B, $0.01 par value: Authorized shares - 15,000; issued and outstanding shares - 4,435 in 2024 and none in 2023 | — | | | — | |
Preferred stock, Class C, $0.01 par value: Authorized shares - 10,000; issued and outstanding shares - 1,210 in 2024 and none in 2023 | — | | | — | |
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 26,438,420 in 2024 and 25,670,663 in 2023 | 265 | | | 257 | |
Additional paid-in capital | 508,675 | | | 283,684 | |
Retained earnings | 417,282 | | | 480,320 | |
Accumulated other comprehensive loss | (151) | | | — | |
Total Forward Air shareholders' equity | 926,071 | | | 764,261 | |
Noncontrolling interest | 406,367 | | | — | |
Total shareholders' equity | 1,332,438 | | | 764,261 | |
Total liabilities and shareholders' equity | $ | 3,959,260 | | | $ | 2,979,533 | |
| | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | |
Forward Air Corporation |
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income |
(unaudited and in thousands, except per share amounts) |
|
| Three Months Ended |
| March 31, 2024 | | March 31, 2023 |
Operating revenue | $ | 541,813 | | | $ | 357,709 | |
| | | |
Operating expenses: | | | |
Purchased transportation | 277,015 | | | 145,171 | |
Salaries, wages and employee benefits | 128,867 | | | 66,647 | |
Operating leases | 38,803 | | | 24,073 | |
Depreciation and amortization | 31,786 | | | 12,372 | |
Insurance and claims | 12,881 | | | 13,258 | |
Fuel expense | 5,246 | | | 5,686 | |
Other operating expenses | 112,947 | | | 43,306 | |
| | | |
Total operating expenses | 607,545 | | | 310,513 | |
(Loss) income from continuing operations | (65,732) | | | 47,196 | |
| | | |
Other income and expenses: | | | |
Interest expense, net | (40,753) | | | (2,355) | |
Foreign exchange loss | (668) | | | — | |
Other income, net | 9 | | | — | |
Total other expense | (41,412) | | | (2,355) | |
(Loss) income before income taxes | (107,144) | | | 44,841 | |
Income tax (benefit) expense | (18,350) | | | 10,937 | |
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| | | |
Net (loss) income from continuing operations | (88,794) | | | 33,904 | |
Income from discontinued operation, net of tax | — | | | 2,464 | |
Net (loss) income | (88,794) | | | 36,368 | |
Net loss attributable to noncontrolling interest | (27,082) | | | — | |
Net (loss) income attributable to Forward Air | $ | (61,712) | | | $ | 36,368 | |
| | | |
Basic net (loss) income per share attributable to Forward Air: | | | |
Continuing operations | $ | (2.81) | | | $ | 1.28 | |
Discontinued operations | — | | | 0.09 | |
Net (loss) income per basic share | $ | (2.81) | | | $ | 1.37 | |
| | | |
Diluted net (loss) income per share attributable to Forward Air: | | | |
Continuing operations | $ | (2.81) | | | $ | 1.27 | |
Discontinued operations | — | | | 0.09 | |
Net (loss) income per diluted share | $ | (2.81) | | | $ | 1.37 | |
| | | |
Dividends per share | $ | — | | | $ | 0.24 | |
| | | |
Net (loss) income | $ | (88,794) | | | $ | 36,368 | |
Other comprehensive (loss) income: | | | |
Foreign currency translation adjustments | (151) | | | — | |
Comprehensive (loss) income | (88,945) | | | 36,368 | |
Comprehensive loss attributable to noncontrolling interest | (27,082) | | | — | |
Comprehensive (loss) income attributable to Forward Air | $ | (61,863) | | | $ | 36,368 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | |
Forward Air Corporation |
Condensed Consolidated Statements of Cash Flows |
(unaudited and in thousands) |
|
| Three Months Ended |
| March 31, 2024 | | March 31, 2023 |
| |
Operating activities: | | | |
Net (loss) income from continuing operations | $ | (88,794) | | | $ | 33,904 | |
Adjustments to reconcile net (loss) income of continuing operations to net cash (used in) provided by operating activities of continuing operations | | | |
Depreciation and amortization | 31,786 | | | 12,372 | |
| | | |
| | | |
Share-based compensation expense | 1,567 | | | 2,906 | |
Provision for revenue adjustments | 1,038 | | | 1,098 | |
Deferred income tax expense | 2,945 | | | 1,857 | |
Other | 4,169 | | | (1,091) | |
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses: | | | |
Accounts receivable | (20,495) | | | 16,397 | |
Other receivables | 5,367 | | | — | |
Other current and noncurrent assets | (7,104) | | | 10,910 | |
Accounts payable and accrued expenses | 17,802 | | | (17,514) | |
Net cash (used in) provided by operating activities of continuing operations | (51,719) | | | 60,839 | |
| | | |
Investing activities: | | | |
Proceeds from sale of property and equipment | 849 | | | 1,815 | |
Purchases of property and equipment | (4,970) | | | (6,519) | |
Purchase of a business, net of cash acquired | (1,565,242) | | | (56,567) | |
Other | (89) | | | — | |
Net cash used in investing activities of continuing operations | (1,569,452) | | | (61,271) | |
| | | |
Financing activities: | | | |
Repayments of finance lease obligations | (4,562) | | | (2,086) | |
Proceeds from credit facility | — | | | 45,000 | |
Payments on credit facility | (80,000) | | | — | |
Payment of debt issuance costs | (60,591) | | | — | |
Payment of earn-out liability | (12,247) | | | — | |
| | | |
Payments of dividends to shareholders | — | | | (6,345) | |
Repurchases and retirement of common stock | — | | | (50,491) | |
| | | |
Payment of minimum tax withholdings on share-based awards | (1,326) | | | (4,292) | |
Contributions from subsidiary held for sale | — | | | 4,852 | |
Net cash used in financing activities of continuing operations | (158,726) | | | (13,362) | |
Effect of exchange rate changes on cash | 94 | | | — | |
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents from continuing operations | (1,779,803) | | | (13,794) | |
| | | |
Cash from discontinued operation: | | | |
Net cash provided by operating activities of discontinued operation | — | | | 5,154 | |
Net cash used in investing activities of discontinued operation | — | | | (270) | |
Net cash used in financing activities of discontinued operation | — | | | (4,884) | |
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents | (1,779,803) | | | (13,794) | |
Cash, cash equivalents and restricted cash equivalents at beginning of period of continuing operations | 1,952,073 | | | 45,822 | |
Cash at beginning of period of discontinued operation | — | | | — | |
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents | (1,779,803) | | | (13,794) | |
Less: cash at end of period of discontinued operation | — | | | — | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period of continuing operations | $ | 172,270 | | | $ | 32,028 | |
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Forward Air Corporation |
Consolidated Statements of Cash Flows |
(In thousands) |
| Three Months Ended |
| March 31, 2024 | | March 31, 2023 |
| |
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents: | | | |
Cash and cash equivalents | $ | 152,042 | | | $ | 32,028 | |
Restricted cash and restricted cash equivalents | 20,228 | | | — | |
Noncurrent restricted cash equivalents | — | | | — | |
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the statement of cash flow: | $ | 172,270 | | | $ | 32,028 | |
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Non-Cash Transactions: | | | |
Equipment acquired under finance leases | $ | 1,936 | | | $ | 5,842 | |
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) |
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| Common Stock | | Preferred Stock - Class B Amount | | Preferred Stock - Class C Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | | | Noncontrolling Interest | | Total Shareholders' Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at December 31, 2023 | 25,671 | | | $ | 257 | | | — | | | $ | — | | | — | | | $ | — | | | $ | 283,684 | | | $ | — | | | $ | 480,320 | | | | | $ | — | | | $ | 764,261 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (61,712) | | | | | (27,082) | | | (88,794) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (151) | | | — | | | | | — | | | (151) | |
Shares issued - acquisition | 700 | | | 7 | | | 4 | | | — | | | 1 | | | — | | | 223,425 | | | — | | | — | | | | | 433,449 | | | 656,881 | |
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Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 1,567 | | | — | | | — | | | | | — | | | 1,567 | |
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Payment of minimum tax withholdings on share-based awards | (33) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,326) | | | | | — | | | (1,326) | |
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Issuance of share-based awards | 100 | | | 1 | | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | | | — | | | — | |
Balance at March 31, 2024 | 26,438 | | | $ | 265 | | | 4 | | | $ | — | | | 1 | | | $ | — | | | $ | 508,675 | | | $ | (151) | | | $ | 417,282 | | | | | $ | 406,367 | | | $ | 1,332,438 | |
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| 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 | |
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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 | |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
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 three reportable segments: Expedited Freight, Intermodal and Omni Logistics. The Company conducts business in North America, Europe, and Asia.
The Expedited Freight segment provides expedited regional, inter-regional and national less-than-truckload (“LTL”) and truckload 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 Omni Logistics segment provides a full suite of global logistics services. Services include air and ocean freight consolidation and forwarding, custom brokerage, warehousing and distribution, time-definite transportation services and other supply chain solutions.
The Company’s condensed consolidated financial statements include Forward Air Corporation and its wholly-owned and majority owned domestic and foreign subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
In the fourth quarter of 2023, the Company held interests in two wholly-owned subsidiaries of Omni Newco, LLC (“Omni”), GN Bondco, LLC and GN Loanco, LLC, that were considered Variable Interest Entities (“VIEs”). VIEs are legal entities in which equity investors do not have sufficient equity at risk for the entity to independently finance its activities, or as a group, the holders of the equity investment at risk lack the power through voting or similar rights to direct the activities of the entity that most significantly impact its economic performance, or do not have the obligation to absorb the expected losses of the entity or the right to receive expected residual returns of the entity. Consolidation of a VIE is required if a reporting entity is the primary beneficiary of the VIE.
Interests in these VIEs are evaluated to determine if the Company is the primary beneficiary. This evaluation gives appropriate consideration to the design of the entity and the variability that the entity was designed to create and pass along, the relative power of each party, and to the Company’s obligation to absorb losses or receive residual returns of the entity. The Company concluded that the VIEs should be consolidated as of December 31, 2023 because the Company had (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses and the right to receive benefits, which could potentially be significant. On January 25, 2024 (“the Closing”), the Company completed the acquisition of Omni Newco, LLC (“the Omni Acquisition”) pursuant to the Agreement and plan of Merger, dated as of August 10, 2023 (the “Merger Agreement”) and amended by Amendment No. 1, dated as of January 22, 2024 (the “Amended Merger Agreement”). The VIEs were acquired as part of the Omni Acquisition and assumed into the Company's consolidated subsidiaries as of March 31, 2024. Refer to Note 4, Acquisitions, for additional disclosures regarding the Company’s previously held VIEs.
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 (the “SEC”). 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, 2023. Results for interim periods are not necessarily indicative of the results for the year.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Foreign Currency
Foreign currency amounts attributable to foreign operations have been translated into United States dollars. Assets and liabilities are translated to United States dollars at period-end exchange rates and income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are included in “Accumulated other comprehensive loss” in stockholders’ equity within the Condensed Consolidated Balance Sheets and gains and losses, which result from foreign currency transactions, are included in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
Restricted Cash
As of March 31, 2024, the Company had restricted cash in the amount of $20,228 related to letters of credit, which guarantee the Company’s obligations for potential claims exposure for insurance coverage.
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 collectability 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 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
3. Discontinued Operation
As previously disclosed, in December 2023, the Company made a decision to divest of the Final Mile business and the sale was completed on December 20, 2023. As a result, the results of operations of Final Mile, have been presented under the caption “Income from discontinued operations, net of tax” in the Consolidated Statement of Operations for the three months ended March 31, 2023.
Summarized Discontinued Operation Financial Information
A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2023 is as follows:
| | | | | |
| Three Months Ended |
| March 31, 2023 |
Operating revenue | $ | 69,357 | |
| |
Operating expenses: | |
Purchased transportation | 40,046 | |
Salaries, wages and employee benefits | 12,873 | |
Operating leases | 3,175 | |
Depreciation and amortization | 1,263 | |
Insurance and claims | 524 | |
Fuel expense | 98 | |
Other operating expenses | 8,065 | |
| |
Total operating expenses | 66,044 | |
Income from discontinued operation before income taxes | 3,313 | |
Income tax expense | 849 | |
Income from discontinued operation, net of tax | $ | 2,464 | |
4. Acquisitions
Expedited Freight Acquisition
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 is expected to accelerate the expansion of the Company’s national terminal footprint, particularly in the middle part of the United States, and 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 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Acquisition of Omni
On January 25, 2024, the Company completed the Omni Acquisition pursuant to the Merger Agreement, and amended by the Amended Merger Agreement. Omni Newco, LLC (“Omni”), headquartered in Dallas, Texas, is an asset-light, high-touch logistics and supply chain management company with customer relationships in high-growth end markets. Omni delivers domestic and international freight forwarding, fulfillment services, customs brokerage, distribution, and value-added services for time-sensitive freight to U.S.-based customers operating both domestically and internationally. Pursuant to the Amended Merger Agreement, through a series of transactions involving the Company’s direct and indirect subsidiaries (collectively, with the other transactions contemplated by the Amended Merger Agreement and the other Transaction Agreements referred to therein, the “Transactions”), acquired Omni for a combination of (a) $100,499 in cash and (b) (i) common equity consideration representing 5,135 shares of the Company’s outstanding common stock, par value $0.01 per share on an as-converted and as-exchanged basis (the “Common Equity Consideration”) and (ii) non-voting, convertible perpetual preferred equity consideration representing, if the Company’s shareholders give the Conversion Approval (as defined below), an additional 8,880 shares of common stock on an as-exchanged basis (the “Convertible Preferred Equity Consideration”). The Common Equity Consideration represents, as of the Closing and before any Conversion Approval, approximately 16.5% of the Company’s common stock, on a fully diluted, as-exchanged basis. If the Company’s shareholders approve the conversion of the Convertible Preferred Equity Consideration to Forward Common Stock in accordance with the listing rules of NASDAQ (the “Conversion Approval”), the Common Equity Consideration and the Convertible Preferred Equity Consideration together will represent, as of the Closing, 35.0% of the Company’s common stock on a fully diluted and as-exchanged basis.
Prior to the consummation of the Transactions, the Company completed a restructuring, pursuant to which, among other things, the Company contributed all of its operating assets to Clue Opco LLC, a newly formed subsidiary of the Company (“Opco”). Opco has been structured as an umbrella partnership C corporation through which the existing direct and certain indirect equityholders of Omni (“Omni Holders”), as of Closing, hold (i) a portion of the Common Equity Consideration in the form of units of Opco designated as “Class B Units” (“Opco Class B Units”) and corresponding Series B Preferred Units (as defined below) and (ii) a portion of the Convertible Preferred Equity Consideration in the form of units of Opco designated as “Series C-2 Preferred Units” (“Opco Series C-2 Preferred Units”). Effective as of the Closing, the Company operates its business through Opco, which indirectly holds all of the assets and operations of the Company and Omni. Opco is governed by an amended and restated limited liability company agreement of Opco that became effective at the Closing (“Opco LLCA”).
The portion of the transaction consideration paid to Omni Holders that is Common Equity Consideration consists of (a) shares of the Company’s common stock and (b) Opco Class B Units and corresponding Series B Preferred Units that are exchangeable at the option of the holders thereof into shares of the Company’s common stock pursuant to the Opco LLCA. The portion of the transaction consideration paid to Omni Holders that is Convertible Preferred Equity Consideration consists of (a) Series C Preferred Units that will automatically convert into shares of the Company’s common stock upon the receipt of the Conversion Approval and (b) Opco Series C-2 Preferred Units that are economically equivalent to Series C Preferred Units and will automatically convert into Opco Class B Units and corresponding Series B Preferred Units upon receipt of the Conversion Approval pursuant to the Opco LLCA. If the Conversion Approval is obtained, the Convertible Preferred Equity Consideration will convert into (i) the Company’s common stock and (ii) Opco Class B Units and corresponding Series B Preferred Units.
In connection with the Transactions, the Company has agreed to use its reasonable best efforts to obtain the Conversion Approval at the first annual meeting of the Company’s shareholders following the Closing. If the Company does not obtain the Conversion Approval at such annual meeting, then, so long as any Series C Preferred Units remain outstanding, the Company has agreed to continue to use its reasonable best efforts to obtain the Conversion Approval at each annual meeting of shareholders thereafter until the Conversion Approval is obtained.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
At the Closing, the Company, Opco, Omni Holders and certain other parties entered into a tax receivable agreement (the “Tax Receivable Agreement”), which sets forth the agreement among the parties regarding the sharing of certain tax benefits realized by the Company as a result of the Transactions. Pursuant to the Tax Receivable Agreement, the Company is generally obligated to pay certain Omni Holders 83.5% of (a) the total tax benefit that the Company realizes as a result of increases in tax basis in Opco’s assets resulting from certain actual or deemed distributions and the future exchange of units of Opco for shares of securities of the Company (or cash) pursuant to the Opco LLCA, (b) certain pre-existing tax attributes of certain Omni Holders that are corporate entities for tax purposes, (c) the tax benefits that the Company realizes from certain tax allocations that correspond to items of income or gain required to be recognized by certain Omni Holders, and (d) other tax benefits attributable to payments under the Tax Receivable Agreement.
As of December 31, 2023, the Company consolidated the activities of GN Bondco, LLC (VIE) and GN Loanco, LLC (VIE) with the proceeds from the Notes and New Term Loan recorded in “Noncurrent restricted cash equivalents” and the corresponding long-term debt recorded in “Long-term debt held in escrow” on the Condensed Consolidated Balance Sheets. Pursuant to the Merger Agreement, the Company deposited the appropriate funds into escrow on behalf of GN Bondco, LLC and GN Loanco, LLC in connection with the interest accrued through the Closing Date. For the interest funded but unpaid as of December 31, 2023, the corresponding amounts were recorded in “Restricted cash equivalents” and “Accrued expenses” on the Condensed Consolidated Balance Sheets. Additionally, while held in escrow, the proceeds from the Notes and New Term Loan were invested in a liquid, short-term instrument. The receivable for the interest earned through December 31, 2023 was recorded in “Restricted cash equivalents” and “Other receivables” on the Condensed Consolidated Balance Sheets.
At the Closing, the funds held in escrow were released, the aforementioned VIEs were dissolved, and the proceeds were distributed to the Company to affect the Transactions. The Notes and New Term Loans are discussed in Note 7, Indebtedness.
The Omni Acquisition enables the Company to provide a differentiated service offering and expanded geographic footprint to customers. In addition, the combination of these complementary businesses positions the Company to deliver integrated global supply chain solutions for customers’ most service-sensitive logistics needs. Goodwill recognized related to the preliminary purchase price represents planned operational synergies, expanded geographic reach of our services, and strategic market positioning. The results of Omni have been included in the Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Omni reportable segment and is not expected to be deductible for tax purposes.
Purchase Price of Omni
The sources of the preliminary purchase price consideration are as follows:
| | | | | |
| Omni |
Cash | $ | 100,499 | |
Liabilities under tax receivable agreement | 13,270 | |
Common shares | 32,795 | |
Series B preferred shares (each issued with a corresponding Opco class B unit) | 207,880 | |
Series C preferred shares | 56,713 | |
Opco C-2 preferred units | 359,493 | |
Extinguishment of Omni's indebtedness | 1,543,003 | |
Preliminary purchase price | $ | 2,313,653 | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Fair Value of Assets Acquired and Liabilities Assumed
Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:
| | | | | | | | | | | | | | |
| | Land Air | | Omni |
| | January 31, 2023 | | January 25, 2024 |
Tangible assets: | | | | |
Cash | | $ | — | | | $ | 78,260 | |
Accounts receivable | | — | | | 181,570 | |
| | | | |
| | | | |
Property and equipment | | 738 | | | 75,292 | |
Other assets | | — | | | 35,639 | |
Operating lease right-of-use assets | | — | | | 234,025 | |
Total tangible assets | | 738 | | | 604,786 | |
Intangible assets: | | | | |
Customer relationships | | 35,200 | | | 1,062,729 | |
Non-compete agreements | | — | | | 42,509 | |
Trademarks and other | | — | | | 42,510 | |
Goodwill | | 20,629 | | | 1,100,474 | |
Total intangible assets | | 55,829 | | | 2,248,222 | |
Total assets acquired | | 56,567 | | | 2,853,008 | |
| | | | |
Liabilities assumed: | | | | |
Current liabilities | | — | | | 156,408 | |
Finance lease obligations | | — | | | 14,606 | |
Operating lease liabilities | | — | | | 234,025 | |
Other liabilities | | — | | | 643 | |
Deferred income taxes | | — | | | 133,673 | |
| | | | |
Total liabilities assumed | | — | | | 539,355 | |
Net assets acquired | | $ | 56,567 | | | $ | 2,313,653 | |
The preliminary purchase price for Omni has been allocated to assets acquired and liabilities assumed based on the Company’s best estimates and assumptions using the information available as of the acquisition date through the date of this filing. As a part of the Omni Acquisition, the interest in Opco not owned by Company was valued to be $433,449 on January 25, 2024 and is disclosed in the Condensed Consolidated Statements of Shareholders’ Equity. Due to the timing of the Closing, the Company continues to evaluate the impact of this acquisition on its Condensed Consolidated Financial Statements. The primary areas of the acquisition accounting that are not yet finalized include, but are not limited to, the following: (1) finalizing the review and valuation of the acquired tangible and intangible assets and liabilities (including the models, key assumptions, inputs, and estimates) and (2) finalizing the identification of the tangible and intangible assets acquired and liabilities assumed and identified. Actual values may differ (possibly materially) when final information becomes available that differs from our current estimates. We believe that the information gathered to date provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.
For the three months ended March 31, 2024, the Company recorded $58,226 of transactions and integration costs incurred in connection with the Omni Acquisition. The transaction and integration costs were recorded in “Other operating expenses” in the Condensed Consolidated Statements of Operations.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
The preliminary estimated useful life of acquired intangible assets as of the acquisition date are summarized in the following table:
| | | | | | | | | | | |
| Estimated Useful Lives |
| Land Air | | Omni |
Customer relationships | 15 years | | 12 years |
Non-compete agreements | — | | 5 years |
Trademarks and other | — | | 5 years |
Supplemental Pro Forma Information
The following table represents the pro forma financial information as if Omni had been included in the consolidated results of the Company since January 1, 2023 (unaudited and in thousands):
| | | | | | | | |
| Three Months Ended |
| March 31, 2024 | March 31, 2023 |
Pro forma revenue | $ | 623,813 | | $ | 701,600 | |
Pro forma net loss from continuing operations | (154,345) | | (41,436) | |
The pro forma financial information adjusts the revenue and net loss for amortization of the intangible assets and the fair value adjustments of the assets acquired in connection with the Omni Acquisition as if the closing had occurred on January 1, 2023.
5. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill during the three months ended March 31, 2024 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Expedited Freight | | Intermodal | | Omni Logistics | | Consolidated |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance as of December 31, 2023 | $ | 141,720 | | | $ | 136,986 | | | $ | — | | | $ | 278,706 | |
Acquisition | — | | | — | | | 1,100,474 | | | 1,100,474 | |
| | | | | | | |
Balance as of March 31, 2024 | $ | 141,720 | | | $ | 136,986 | | | $ | 1,100,474 | | | $ | 1,379,180 | |
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.
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, 2024.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Other Intangible Assets
Changes in the carrying amount of acquired intangible assets during the three months ended March 31, 2024 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Carrying Amount |
| | Customer Relationships1 | | Non-Compete Agreements | | Trade Names | | Total |
Balance as of December 31, 2023 | | $ | 253,914 | | | $ | 6,407 | | | $ | 1,500 | | | $ | 261,821 | |
Acquisition | | 1,062,729 | | | 42,509 | | | 42,510 | | | 1,147,748 | |
Balance as of March 31, 2024 | | $ | 1,316,643 | | | $ | 48,916 | | | $ | 44,010 | | | $ | 1,409,569 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accumulated Amortization |
| | Customer Relationships1 | | Non-Compete Agreements | | Trade Names | | Total |
Balance as of December 31, 2023 | | $ | 118,993 | | | $ | 6,539 | | | $ | 1,500 | | | $ | 127,032 | |
Amortization expense | | 15,243 | | | 1,449 | | | 1,417 | | | 18,109 | |
Balance as of March 31, 2024 | | $ | 134,236 | | | $ | 7,988 | | | $ | 2,917 | | | $ | 145,141 | |
1 Carrying value as of March 31, 2024 and December 31, 2023 is inclusive of $16,501 of accumulated impairment.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
6. Stock Incentive Plans
Stock Incentive Plan
The Company recorded share-based compensation expense as follows for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
Salaries, wages and employee benefits - continuing operations | $ | 1,217 | | | $ | 2,567 | | | | | |
Salaries, wages and employee benefits - discontinued operation | — | | | 243 | | | | | |
Total share-based compensation expense | $ | 1,217 | | | $ | 2,810 | | | | | |
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, 2024, approximately 137 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, 2024 were as follows:
| | | | | | | | | | | |
| Stock Options | | Weighted-Average Exercise Price |
Outstanding as of January 1 | 370 | | | $ | 76.83 | |
Granted | — | | | — | |
Exercised | — | | | — | |
Forfeited | (83) | | | 73.02 | |
Outstanding as of March 31 | 287 | | | $ | 77.93 | |
As of March 31, 2024, the total share-based compensation expense related to unvested stock options not yet recognized was $750, and the weighted-average period over which it is expected to be recognized is approximately two years.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
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. All forfeitures are recognized as incurred.
Restricted share transactions during the three months ended March 31, 2024 were as follows:
| | | | | | | | | | | |
| Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1 | 133 | | | $ | 104.87 | |
Granted | 360 | | | 33.46 | |
Vested | (62) | | | 98.36 | |
Forfeited | (13) | | | 99.84 | |
Outstanding as of March 31 | 418 | | | $ | 44.41 | |
As of March 31, 2024, the total share-based compensation expense related to restricted shares not yet recognized was $17,293, 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 of Directors (“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, 2024 were as follows assuming target levels of performance:
| | | | | | | | | | | |
| Performance Awards | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1 | 61 | | | $ | 105.88 | |
Granted | 116 | | | 7.62 | |
Additional shares awarded based on performance | 14 | | | 91.33 | |
Earned | (39) | | | 89.34 | |
Forfeited or unearned | (23) | | | 115.17 | |
Outstanding as of March 31 | 129 | | | $ | 19.15 | |
As of March 31, 2024, 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 $1,644, and the weighted-average period over which it is expected to be recognized is approximately two years.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Employee Stock Purchase Plan
Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue up to a remaining 302 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.
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, 2024, 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 three months ended March 31, 2024 were as follows:
| | | | | | | | | | | |
| Director Restricted Shares | | Weighted-Average Grant Date Fair Value |
Outstanding as of January 1 | 14 | | | $ | 96.10 | |
Granted | 2 | | | 38.46 | |
Vested | — | | | — | |
Forfeited | — | | | — | |
Outstanding as of March 31 | 16 | | | $ | 89.69 | |
For the three months ended March 31, 2024 and 2023, the Company recorded $350 and $339, respectively, of share-based compensation expense associated with these grants. As of March 31, 2024, the total share-based compensation expense related to the restricted shares not yet recognized was $179, and the weighted-average period over which it is expected to be recognized is approximately less than one year.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
7. Indebtedness
Long-term debt consisted of the following as of March 31, 2024 and December 31, 2023:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Term Loan, expiring 2030 1 | $ | 1,045,000 | | | $ | — | |
Senior Secured Notes, maturing 2031 1 | 725,000 | | | — | |
Debt issuance discount | (58,551) | | | — | |
Debt issuance costs 2 | (36,092) | | | — | |
| 1,675,357 | | | — | |
| | | |
Less: Current portion of long-term debt | (11,250) | | | — | |
Total long-term debt, less current portion | $ | 1,664,107 | | | $ | — | |
| | | |
1 On December 31, 2023 the debt instruments and related proceeds were consolidated but were restricted under an escrow agreement contingent upon the Closing of the Omni Acquisition. |
2 Debt issuance costs of $11,275 related to the Revolving Credit Facility are recorded in Other Assets. |
Senior Secured Notes
In order to finance a portion of the cash consideration payable for the Omni Acquisition and the costs and expenses incurred in connection with the transaction, GN Bondco, LLC, a wholly owned subsidiary of Omni, (the “Escrow Issuer” and consolidated VIE) completed a private offering of $725,000 aggregate principal amount of its 9.5% senior secured notes due 2031 (the “Notes”) in a transaction exempt from registration under the Securities Act. As of December 31, 2023, the Notes were included in Long-term debt held in escrow on the Condensed Consolidated Balance Sheets. Upon the Closing, Opco assumed the Escrow Issuer’s obligations under the Notes. The Notes bear interest at a rate of 9.5% per annum, payable semiannually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2024. The Notes were issued at 98.0% of the face amount and will mature on October 15, 2031. Notes were issued pursuant to an indenture dated as of October 2, 2023, between the Escrow Issuer and U.S. Bank Trust Company, National Association, as trustee and notes collateral agent.
The Notes are guaranteed on a senior secured basis in an aggregate principal amount in excess of $100,000. Prior to October 15, 2026, Opco may redeem some or all of the Notes at any time and from time to time at a redemption price equal to 100.000% of the principal amount thereof plus the applicable “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after October 15, 2026, Opco may redeem some or all of the Notes at the following prices (expressed as a percentage of principal), plus in each case accrued and unpaid interest, if any, to, but excluding, the redemption date: (a) in the case of a redemption occurring during the 12-month period commencing October 15, 2026, at a redemption price of 104.750%; (b) in the case of a redemption occurring during the 12-month period commencing on October 15, 2027, at a redemption price of 102.375%; and (c) in the case of a redemption occurring on or after October 15, 2028, at a redemption price of 100.000%. In addition, at any time prior to October 15, 2026, Opco may redeem up to 40.000% of the original aggregate principal amount of the Notes in an amount not to exceed the amount of net cash proceeds from one or more equity offerings at a redemption price equal to 109.5% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Upon the occurrence of a “change of control”, Opco will be required to offer to repurchase all of the outstanding principal amount of the Notes at a purchase price of 101.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Senior Secured Term Loan Facility
In order to finance a portion of the cash consideration payable for the Omni Acquisition and the costs and expenses incurred in connection with the transaction, GN Loanco, LLC, a wholly owned subsidiary of Omni, (the “Escrow Loan Borrower” and consolidated VIE), entered into a credit agreement (the “Credit Agreement”) with Citibank, N.A., as administrative agent and collateral agent and as initial term loan lender on December 19, 2023. Pursuant to the Credit Agreement, the Escrow Loan Borrower obtained senior secured term B loans in an aggregate principal amount of $1,125,000 (the “New Term Loans”) and the ability to draw down up to $400,000 under a line of credit (the “Revolving Credit Facility”).
The New Term Loans bear interest based, at Opco’s election, on (a) SOFR plus an applicable margin or (b) the base rate plus an applicable margin. The base rate is equal to the highest of the following: (i) the prime rate; (ii) 0.50% above the overnight federal funds rate; and (iii) the one-month Term SOFR plus 1.00%. The applicable margin for Term SOFR loans is 4.50% and the applicable margin for base rate loans is 3.50%. The New Term Loans are subject to customary amortization of 1.00% per year. The New Term Loans were issued at 96.0% of the face amount and will mature on December 19, 2030.
No borrowings under the Revolving Credit Facility were made in connection with the Omni Acquisition. The Revolving Credit Facility will mature on January 25, 2029. Loans made under the Revolving Credit Facility bear interest based, at Opco’s election, on (a) SOFR plus an applicable margin or (b) the base rate plus an applicable margin. Until delivery of a compliance certificate in respect of the fiscal quarter ending June 30, 2024, the applicable margin for SOFR loans is 4.25% and the applicable margin for base rate loans is 3.25%. Thereafter, the applicable margin can range from 3.75% to 4.25% for SOFR loans and from 2.75% to 3.25% for base rate loans, in each case depending on Opco’s first lien net leverage ratio, as set forth in the Credit Agreement. Upon closing of the Omni Acquisition, Opco assumed the Escrow Loan Borrower’s obligations under the Credit Agreement, which were further secured by certain guarantors. Opco’s obligations under the Credit Agreement are guaranteed on a senior secured basis by the Company and each of Opco’s existing and future domestic subsidiaries (subject to customary exceptions).
On February 12, 2024, Opco and the parties to the Credit Agreement entered into Amendment No. 2 (“Amendment No. 2”) to the Credit Agreement, which (a) modifies the financial performance covenant in the Credit Agreement by temporarily increasing the 4.50:1.00 maximum consolidated first lien net leverage ratio permitted by the covenant to (i) 6.00:1.00 (for the second and third quarters of 2024), (ii) 5.50:1.00 (for the fourth quarter of 2024), (iii) 5.25:1.00 (for the first quarter of 2025), (iv) 5.00:1.00 (for the second quarter of 2025) and (v) 4.75:1.00 (for the third quarter of 2025) and (b) reduces the revolving credit commitments available under the Credit Agreement from an aggregate principal amount of $400,000 to an aggregate principal amount of $340,000. If the financial performance covenant is not met, the Company will lose access to the Revolving Credit Facility. Amendment No. 2 also amends certain other terms of the Credit Agreement.
Prior to the effectiveness of Amendment No. 2, on February 12, 2024, Opco repaid $80,000 aggregate principal amount of the New Term Loans outstanding under the Credit Agreement, together with all accrued and unpaid interest thereon.
Both the Notes and Revolving Credit Facility contain 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. As of the date of this report, the Company was in compliance with these aforementioned covenants. The Revolving Credit Facility’s terms also include a financial covenant which requires the Company to maintain a specific leverage ratio with a measurement date starting on June 30, 2024.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Former Credit Facility
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 could have been 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 could have been in the form of additional revolving credit loans, term loans or a combination thereof, and were contingent upon there being no events of default under the Facility.
As of December 31, 2023 the Company had no outstanding borrowings under this credit facility. No borrowings were made under this credit facility prior to the extinguishment upon the Closing.
Letters of Credit
The Company had 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 December 31, 2023, outstanding letters of credit totaled $19,834.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
8. Net (Loss) 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, 2024 and 2023 is as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
| | | | | | | |
Numerator: | | | | | | | |
Net (loss) income from continuing operations | $ | (61,712) | | | $ | 33,904 | | | | | |
Net income from discontinued operation | — | | | 2,464 | | | | | |
Net (loss) income attributable to Forward Air | (61,712) | | | 36,368 | | | | | |
| | | | | | | |
Dividends allocated to Opco C-2 Preferred Units | (11,867) | | | — | | | | | |
| | | | | | | |
Income allocated to participating securities from continuing operations | — | | | (172) | | | | | |
Income allocated to participating securities from discontinued operation | — | | | (13) | | | | | |
Income allocated to participating securities | — | | | (185) | | | | | |
| | | | | | | |
Numerator for basic and diluted net (loss) income per share for continuing operations | $ | (73,579) | | | $ | 33,732 | | | | | |
Numerator for basic and diluted net income per share for discontinued operation | $ | — | | | $ | 2,451 | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Denominator for basic net (loss) income per share - weighted-average number of common shares outstanding | 26,217 | | | 26,350 | | | | | |
Dilutive stock options and performance share awards | — | | | 129 | | | | | |
Denominator for diluted net (loss) income per share - weighted-average number of common shares and common share equivalents outstanding | 26,217 | | | 26,479 | | | | | |
| | | | | | | |
Basic net (loss) income per share attributable to Forward Air: | | | | | | | |
Continuing operations | $ | (2.81) | | | $ | 1.28 | | | | | |
Discontinued operation | — | | | 0.09 | | | | | |
Net (loss) income per basic share | $ | (2.81) | | | $ | 1.37 | | | | | |
| | | | | | | |
Diluted net (loss) income per share attributable to Forward Air: | | | | | | | |
Continuing operations | $ | (2.81) | | | $ | 1.27 | | | | | |
Discontinued operation | — | | | 0.09 | | | | | |
Net (loss) income per diluted share1 | $ | (2.81) | | | $ | 1.37 | | | | | |
1Rounding may impact summation of amounts. | | | | | | | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
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, 2024 and 2023 are as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2024 | | March 31, 2023 | | | | |
Anti-dilutive stock options | 287 | | | 112 | | | | | |
Anti-dilutive performance shares | 12 | | | 18 | | | | | |
Anti-dilutive restricted shares and deferred stock units | 181 | | | 74 | | | | | |
Total anti-dilutive shares | 480 | | | 204 | | | | | |
9. Income Taxes
The Company is taxed as a C corporation and is subject to federal and state income taxes. The Company’s sole material asset is Opco, which is a limited liability company that is taxed as a partnership for federal and certain state and local income tax purposes. Opco’s net taxable income and related tax credits, if any, are passed through to its partners and included in the partner’s tax returns. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its condensed consolidated financial statements. As a result, the Company’s effective tax rate differs materially from the statutory rate. For the three months ended March 31, 2024 and 2023, the Company recorded an income tax benefit of $18,350 and income tax expense of $10,937, respectively. The effective tax rate of 17.1% for the three months ended March 31, 2024 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of the noncontrolling interest, non-deductible executive compensation, excess tax benefits realized on share-based awards, partially offset by state income taxes, net of the federal benefit, and foreign taxes. The effective tax rate of 24.3% 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 Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both March 31, 2024 and December 31, 2023, the Company had $153 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. As of both March 31, 2024 and December 31, 2023, the Company had accrued interest and penalties related to unrecognized tax benefits of $82. 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 2017.
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.
In connection with the Omni Acquisition, the Company entered into a Tax Receivable Agreement with certain Omni Holders. As of March 31, 2024, the Company recorded a Tax Receivable Agreement liability of approximately $13,270, after concluding that such Tax Receivable Agreement payments would be probable based on estimates of future taxable income over the term of the Tax Receivable Agreement. The determination of the Tax Receivable Agreement liability requires the Company to make judgments in estimating the amount of tax attributes as of the date of exchanges (such as cash to be received by the Company on a hypothetical sale of assets and allocation of gain or loss to the Company at the time of the exchanges taking into consideration partnership tax rules). The amounts payable under the Tax Receivable Agreement will also vary depending upon a number of factors, including tax rates in effect, as well as the amount, character, and timing of the taxable income of Opco in the future and the expected realization of tax benefits with respect to deferred tax assets related to tax attributes subject to Tax Receivable Agreement, which may result in a valuation allowance recorded against the deferred tax assets. If other tax attributes subject to the Tax Receivable Agreement are determined to be payable, additional Tax Receivable Agreement liabilities may be considered probable at that time.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
10. Fair Value of Financial Instruments
The Company categorizes its assets and liabilities into one of three levels based on the assumptions used in valuing the asset or liability. Estimates of fair value financial assets and liabilities are based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 - Model-derived valuations in which one or more significant inputs are unobservable.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2024 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities under tax receivable agreement | | $ | — | | | $ | — | | | $ | 13,270 | | | $ | 13,270 | |
| | | | | | | | |
| | As of December 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities under tax receivable agreement | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Cash, cash equivalents and restricted cash, accounts receivable, other receivables and accounts payable are valued at their carrying amounts in the Company’s Condensed Consolidated Balance Sheets, due to the immediate or short-term maturity of these financial instruments.
As of March 31, 2024, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $50,943, compared to its carrying value of $51,190. As of December 31, 2023, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $38,926, compared to its carrying value of $39,381.
The carrying value of the long-term debt approximates fair value based on the borrowing rates currently available for a loan with similar terms and average maturity.
11. Shareholders’ Equity
Series B Preferred Stock
Pursuant to Articles of Amendment to the Restated Charter of the Company filed with the Secretary of State of the State of Tennessee at the Closing (the “Charter Amendment”), the Company established the terms of a new series of preferred stock of the Company designated as “Series B Preferred Stock” (the “Series B Preferred Stock”), and, at the Closing, certain Omni Holders received fractional units (the “Series B Preferred Units”) each representing one one-thousandth of a share of the Company Series B Preferred Stock. Each Series B Preferred Unit will, together with a corresponding Opco Class B Unit, be exchangeable at the option of the holder thereof into one share of the Company’s common stock.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Holders of Series B Preferred Units and holders of the Company’s common stock will vote together as a single class on all matters to be voted on by the Company’s shareholders, subject to limited exceptions. Each holder of record of Series B Preferred Units is entitled to cast one vote for each such unit.
Pursuant to the Charter Amendment, the Series B Preferred Units have a liquidation preference of $0.01 per unit and are not entitled to receive any dividends independent of their corresponding Opco Class B Units. A Series B Preferred Unit and its corresponding Opco Class B Unit may only be transferred together as a single, combined unit.
Series C Preferred Stock
Pursuant to the Charter Amendment, the Company established the terms of a new series of convertible preferred stock of the Company designated as “Series C Preferred Stock” (the “Series C Preferred Stock”), and, at Closing, certain Omni Holders received fractional units (each, a “Series C Preferred Unit”) each representing one one-thousandth of a share of Series C Preferred Stock. The liquidation preference of Series C Preferred Unit is equal to $110.00 per unit, subject to adjustment for any in-kind payment of the Annual Coupon as described below (the “Liquidation Preference”). In addition, the Series C Preferred Units accrue on each anniversary of issuance a cumulative annual dividend (without any interim accrual) equal to the product of (a) the 14.0% rate fixed at Closing multiplied by (b) the Liquidation Preference (the “Annual Coupon”). The Annual Coupon will be paid, at the Company’s option, in cash or in-kind by automatically increasing the Liquidation Preference in an equal amount.
Commencing on the sixth anniversary of the Closing (and, thereafter, only during the 60-day period following any anniversary of the Closing), the Series C Preferred Units will be callable at the Company’s option in whole (and not in part), at a call price per Series C Preferred Unit equal to (a) the product of (i) the greater of (A) the outstanding liquidation preference of such Series C Preferred Unit and (B) the product of (x) the number of shares of the Company’s common stock into which such Series C Preferred Unit would be convertible upon the receipt of the Conversion Approval, and (y) the 20-day volume-weighted average price per share of the Company’s common stock during a defined period prior to the call, and (ii) 103%, plus (b) the amount of all declared and unpaid dividends in respect of such Series C Preferred Unit.
The Company has deemed the Series C Preferred Units to be permanent equity and expects them to be converted at least within one year from the Closing of the Omni Acquisition.
Cash Dividends
During each quarter of 2023, the Board declared and the Company paid a quarterly cash dividend of $0.24 per common share. No dividends were declared in the first quarter of 2024.
Stock Repurchase Program
On February 5, 2019, the Board approved a stock repurchase plan authorizing the repurchase of up to 5,000 shares of the Company’s common stock (the “2019 Repurchase Plan”). The 2019 Repurchase Plan expires when the shares authorized for repurchase are exhausted or the 2019 Repurchase Plan is canceled.
During the three months ended March 31, 2024, the Company did not repurchase any shares of common stock through open market transactions. 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. 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, 2024, the remaining shares permitted to be repurchased under the 2019 Repurchase Plan were approximately 1,349 shares.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
12. Commitments and Contingencies
Contingencies
On September 26, 2023, Rodney Bell, Michael A. Roberts and Theresa Woods, three shareholders of the Company, filed a complaint (the “Shareholder Complaint”) against the Company and certain of its directors and officers in the Third District Chancery Court sitting in Greeneville, Tennessee. The Shareholder Complaint alleges, among other things, that the Company’s shareholders have the right to vote on certain transactions contemplated by the Merger Agreement and sought an injunction against the consummation of the transaction until a shareholder vote was held. The court initially granted a temporary restraining order enjoining the transactions contemplated by the Merger Agreement but later dissolved it on October 25, 2023. Thereafter and as described below, on January 25, 2024, the parties to the Amended Merger Agreement completed the Omni Acquisition. On May 2, 2024, Plaintiff Michael Roberts, together with the Cambria County Employees Retirement System filed a stipulation and proposed order seeking leave of court to file an amended class action complaint seeking damages, among other forms of relief. The proposed amended complaint, like the earlier complaints, challenges the Company’s determination not to subject the Omni Acquisition to a stockholder vote. The Defendants disagree with the allegations of the proposed amended complaint and will defend the matter if and when an amended complaint is filed.
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 the 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
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/Accident¹ | | $0 to $5,000 | | 10/1/2023 to 10/1/2024 |
Truckload business | | $ | 5,000 | | | Occurrence/Accident¹ | | $0 to $5,000 | | 10/1/2023 to 10/1/2024 |
| | | | | | | | |
LTL, Truckload and Intermodal businesses | | $ | 5,000 | | | Policy Term Aggregate² | | $5,000 to $10,000 | | 10/1/2023 to 10/1/2024 |
| | | | | | | | |
Intermodal | | $ | 1,000 | | | Occurrence/Accident¹ | | $0 to $1,000 | | 10/1/2023 to 10/1/2024 |
| | | | | | | | |
¹ 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.
² 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. 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.
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
13. Segment Reporting
The Company has three reportable segments: Expedited Freight, Intermodal and Omni Logistics. 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, 2023, 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.
Segment results from operations for the three months ended March 31, 2024 and 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 |
| | Expedited Freight | | Intermodal | | Omni Logistics | | Corporate | | Eliminations | | Consolidated |
External revenues | | $ | 260,753 | | | $ | 56,222 | | | $ | 224,838 | | | $ | — | | | $ | — | | | $ | 541,813 | |
Intersegment revenues | | 12,542 | | | 70 | | | — | | | — | | | (12,612) | | | — | |
Depreciation | | 9,013 | | | 2,066 | | | 2,598 | | | — | | | — | | | 13,677 | |
Amortization | | 1,277 | | | 2,561 | | | 14,271 | | | — | | | — | | | 18,109 | |
Income (loss) from operations | | 19,498 | | | 3,586 | | | (28,585) | | | (60,231) | | | — | | | (65,732) | |
Purchases of property and equipment | | 1,262 | | | 1,522 | | | 2,186 | | | — | | | — | | | 4,970 | |
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | Expedited Freight | | Intermodal | | Omni Logistics | | Corporate | | Eliminations | | Consolidated |
External revenues | | $ | 269,547 | | | $ | 88,162 | | | $ | — | | | $ | — | | | $ | — | | | $ | 357,709 | |
Intersegment revenues | | 30 | | | 7 | | | — | | | — | | | (37) | | | — | |
Depreciation | | 6,668 | | | 2,186 | | | — | | | — | | | — | | | 8,854 | |
Amortization | | 958 | | | 2,560 | | | — | | | — | | | — | | | 3,518 | |
Income (loss) from operations | | 29,685 | | | 11,203 | | | — | | | 6,308 | | | — | | | 47,196 | |
Purchases of property and equipment | | 6,343 | | | 176 | | | — | | | — | | | — | | | 6,519 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Assets | | Expedited Freight | | Intermodal | | Omni Logistics | | Corporate | | Eliminations | | Consolidated |
As of March 31, 2024 | | $ | 661,183 | | | $ | 264,203 | | | $ | 2,799,145 | | | $ | 234,740 | | | $ | (11) | | | $ | 3,959,260 | |
As of December 31, 2023 | | 661,270 | | | 270,421 | | | — | | | 2,047,901 | | | (59) | | | 2,979,533 | |
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
March 31, 2024
Revenue from the individual services within the Expedited Freight segment for the three months ended March 31, 2024 and 2023 are as follows:
| | | | | | | | | | | | | | | | | | |
|
|
|
|
|
| | Three Months Ended | | |
| | March 31, 2024 | | March 31, 2023 | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Expedited Freight revenues: | | | | | | | | |
Network | | $ | 214,493 | | | $ | 205,931 | | | | | |
Truckload | | 37,055 | | | 41,744 | | | | | |
Other | | 21,747 | | | 21,902 | | | | | |
Total | | $ | 273,295 | | | $ | 269,577 | | | | | |
| | | | | |
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 and intermodal drayage services and freight brokerage and supply chain services across North America, Europe, and Asia. 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 three reportable segments: Expedited Freight, Intermodal and Omni Logistics.
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 truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. We plan to grow our LTL geographic footprint 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 through greenfield start-ups where no suitable acquisition is available.
Our Omni Logistics segment provides a full suite of global logistics services. Services include air and ocean freight consolidation and forwarding, customs brokerage, warehousing and distribution, time-definite transportation services and other supply chain solutions.
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 GAAP.
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 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
Economy
Our business is highly susceptible to changes in economic conditions. Our products and services are directly tied to the production and sale of goods and, more generally, to the global 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 pressure 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. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, laws and policies relating to tariffs, trade restrictions and foreign investment. Periodically, governments consider a variety of changes to tariffs and impose trade restrictions. We cannot predict the outcome of changes in tariffs, or interpretations, and trade restrictions and the effects they will have on our business. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping lanes in which we conduct business and the future impact that these events may have on international trade.
Our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including airlines, ocean carrier lines and ground transportation providers. We consider our current working relationships with these entities to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, capacity allotments available from carriers could affect our business in unpredictable ways. When the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates pricing volatility that could impact our ability to maintain historical profitability.
The global economic and trade environments remain uncertain, including inflation remaining higher than historical levels, greater volatility in oil prices and high interest rates. Starting in the second quarter of 2022 and continuing through most of 2023, we saw a slowdown in the global economy and a softening of customer demand resulting in declines in rates. As demand remains soft, available transportation capacity continues to exceed demand. These conditions could result in further declines in rates in 2024. We also expect that pricing volatility will continue as carriers adapt to lower demand, changing fuel prices, security risks and react to governmental trade policies and other regulations.
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 manmade 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 11.7% for the quarter ended March 31, 2024 compared to 18.0% for the quarter ended March 31, 2023 as a result of the inclusion of Omni in the results for the quarter ended March 31, 2024.
Recent Events and Factors Affecting Comparability
Omni Acquisition
On January 25, 2024, we acquired Omni Newco, LLC (“Omni Logistics”) for a combination of (a) $100 million in cash and (b) (i) common equity consideration representing 5,135 shares of our common stock on an as-converted and as-exchanged basis and (ii) non-voting, convertible perpetual preferred equity consideration representing, if our shareholders approve, an additional 8,880 shares of our common stock on an as-exchanged basis (“Omni Acquisition”).
See Note 4, Acquisitions, to our Condensed Consolidated Financial Statements for more information about our acquisitions
Omni Logistics revenues and segment income from January 25, 2024 through March 31, 2024 are included in our condensed consolidated statements of comprehensive (loss) income for the three months ended March 31, 2024. The changes in our results of operations for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 are partially driven by the inclusion of the results of operations of Omni Logistics. The following table sets forth the financial data of our Omni Logistics segment for the three months ended March 31, 2024 (unaudited and in thousands):
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| Three Months Ended |
| March 31, 2024 | | Percent of Revenue | | | | | | | | |
Operating revenue | $ | 224,838 | | | 100.0 | % | | | | | | | | |
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Operating expenses: | | | | | | | | | | | |
Purchased transportation | 144,424 | | | 64.2 | | | | | | | | | |
Salaries, wages and employee benefits | 48,775 | | | 21.7 | | | | | | | | | |
Operating leases | 19,127 | | | 8.5 | | | | | | | | | |
Depreciation and amortization | 16,869 | | | 7.5 | | | | | | | | | |
Insurance and claims | 2,053 | | | 0.9 | | | | | | | | | |
Fuel expense | 304 | | | 0.1 | | | | | | | | | |
Other operating expenses | 21,871 | | | 9.8 | | | | | | | | | |
Total operating expenses | 253,423 | | | 112.7 | | | | | | | | | |
Loss from operations | $ | (28,585) | | | (12.7) | % | | | | | | | | |
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Results from Operations
The following table sets forth our consolidated financial data for the three months ended March 31, 2024 and 2023 (unaudited and in thousands):
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| Three Months Ended |
| March 31, 2024 | | March 31, 2023 | | Change | | Percent Change |
Operating revenues: | | | | | | | |
Expedited Freight | $ | 273,295 | | | $ | 269,577 | | | $ | 3,718 | | | 1.4 | % |
Intermodal | 56,292 | | | 88,169 | | | |