Forward Air Corporation Reports Second Quarter 2020 Results

Forward Air Corporation (NASDAQ:FWRD) today reported financial results for the three and six months ended June 30, 2020 as presented in the tables below on a continuing operations basis (Pool Distribution is being reported as a discontinued operation).

Tom Schmitt, Chairman, President and CEO, commenting on the Company's second quarter results said, "I could not be more proud of our teams for stepping up in a huge way for our customers, bringing them back up from April lows in the toughest circumstances with record service levels. By June our top and bottom lines were ahead of last year on a continuing operations basis and were comparable to last year when adjusted for one-time items."

Continuing Operations		Three months ended
(in thousands, except per share data)		June 30, 2020 1				June 30, 2019				Change				Percent Change
Operating revenue		$	281,678			$	302,887			$	(21,209	)		(7.0	)%
Income from operations		$	13,914			$	29,070			$	(15,156	)		(52.1	)%
Operating margin		4.9		%		9.6		%			(470	) bps
Net income		$	9,225			$	21,244			$	(12,019	)		(56.6	)%
Net income per diluted share		$	0.33			$	0.74			$	(0.41	)		(55.4	)%
Cash provided by operating activities		$	29,101			$	25,715			$	3,386			13.2	%
Non-GAAP Financial Measures: 2
EBITDA		$	23,327			$	38,296			$	(14,969	)		(39.1	)%
Free cash flow		$	17,806			$	14,436			$	3,370			23.3	%
1 Results for the three months ended June 30, 2020 include several non-recurring items including a $2.1 million gain from changes in fair value on an earn-out due to the timing of expected new business wins, partially offset by $1.0 million of severance and $0.7 million in reserves for customers negatively impacted by COVID-19.
2 EBITDA and free cash flow are non-GAAP financial measures and reconciliations of these non-GAAP financial measures are provided in the below financial tables.

Michael J. Morris, CFO, commenting on the Company’s third quarter 2020 guidance for continuing operations said “We expect third quarter year-on-year revenue growth to be 1% to 5% and net income per diluted share to be between $0.40 and $0.44.”

On July 21, 2020, our Board of Directors declared a quarterly cash dividend of $0.18 per share of common stock. The dividend is payable to shareholders of record at the close of business on August 20, 2020 and is expected to be paid on September 9, 2020. This quarterly dividend is made pursuant to a cash dividend policy approved by the Board of Directors, which anticipates a total annual dividend of $0.72 for the full year 2020, payable in quarterly increments of $0.18 per share of common stock. The actual declaration of future cash dividends, and the establishment of record and payment dates, is subject to final determination by the Board of Directors each quarter after its review of the Company’s financial performance and position.

On April 23, 2020, the Board approved a strategy to divest the Pool Distribution business (“Pool”). Accordingly, the results of operations and cash flows for Pool have been presented as discontinued operations and have been excluded from continuing operations in this release for all periods presented. In addition, Pool assets and liabilities are reflected as “held-for-sale” on the Consolidated Balance Sheets in this release. For more information regarding Pool discontinued operations, please see the Company’s Form 10-Q for the quarter ended June 30, 2020 expected to be filed with the Securities and Exchange Commission (the “SEC”) on July 31, 2020.

Review of Financial Results
Forward Air will hold a conference call to discuss second quarter 2020 results on Friday, July 31, 2020 at 9:00 a.m. EDT. The Company’s conference call will be available online on the Investor Relations portion of the Company’s website at www.forwardaircorp.com, where investors can easily find or navigate to pertinent information about us, or by dialing [phone], Access Code: 147112. A replay of the conference call will be available on the Investor Relations portion of the Company’s website at www.forwardaircorp.com beginning shortly after completion of the live call.

About Forward Air Corporation
Forward Air keeps your business moving forward by providing services within three business segments: Expedited Freight (provides expedited regional, inter-regional and national LTL services, including local pick-up and delivery, final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling); Intermodal (provides first-and last-mile high-value drayage services both to and from seaports and railheads, dedicated contract and Container Freight Station warehouse and handling services); and Pool Distribution (provides high frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region). For more information, visit our website at www.forwardaircorp.com.

Forward Air Corporation
Consolidated Statements of Comprehensive Income
(Unaudited, in thousands, except per share data)
		Three months ended								Six months ended
		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
						(As Adjusted)								(As Adjusted)
Operating revenue:
Expedited Freight		$	235,658			$	253,286			$	489,287			$	478,944
Intermodal		46,428				50,539				98,888				104,654
Eliminations and other operations		(408		)		(938		)		(940		)		(1,750		)
Operating revenue		281,678				302,887				587,235				581,848
Operating expenses:
Purchased transportation		142,069				143,436				292,667				275,987
Salaries, wages and employee benefits		63,772				63,841				133,331				123,798
Operating leases		17,387				16,124				35,271				31,001
Depreciation and amortization		9,413				9,227				18,747				18,515
Insurance and claims		7,722				11,757				17,766				19,745
Fuel expense		2,519				4,467				6,532				8,582
Other operating expenses		24,882				24,965				53,234				51,448
Total operating expenses		267,764				273,817				557,548				529,076
Income (loss) from continuing operations:
Expedited Freight		11,753				28,187				26,933				49,093
Intermodal		4,413				5,245				8,126				11,426
Other operations		(2,252		)		(4,362		)		(5,372		)		(7,747		)
Income from continuing operations		13,914				29,070				29,687				52,772
Other expense:
Interest expense		(1,198		)		(581		)		(2,051		)		(1,156		)
Other, net		—				(1		)		—				(2		)
Total other expense		(1,198		)		(582		)		(2,051		)		(1,158		)
Income before income taxes		12,716				28,488				27,636				51,614
Income tax expense		3,491				7,244				6,995				12,683
Net income from continuing operations		9,225				21,244				20,641				38,931
(Loss) income from discontinued operations, net of tax		(6,071		)		1,086				(9,112		)		1,806
Net income and comprehensive income		$	3,154			$	22,330			$	11,529			$	40,737
Net income per share:
Basic net income (loss) per share:
Continuing operations		$	0.33			$	0.74			$	0.72			$	1.35
Discontinued operations		(0.22		)		0.04				(0.31		)		0.07
Net income per share		$	0.11			$	0.78			$	0.41			$	1.42
Diluted net income (loss) per share:
Continuing operations		$	0.33			$	0.74			$	0.72			$	1.35
Discontinued operations		(0.22		)		0.04				(0.32		)		0.06
Net income per share		$	0.11			$	0.78			$	0.40			$	1.41
Dividends per share:		$	0.18			$	0.18			$	0.36			$	0.36

Expedited Freight Segment Information
(In millions)
(Unaudited)
		Three months ended
		June 30,				Percent of			June 30,				Percent of							Percent
		2020 1				Revenue			2019				Revenue			Change				Change
									(As Adjusted)
Operating revenue:
Network 2		$	134.2			56.9	%		$	172.5			68.1	%		$	(38.3	)		(22.2	)%
Truckload		41.9				17.8			48.6				19.2			(6.7		)		(13.8	)
Final Mile		53.4				22.7			25.0				9.9			28.4				113.6
Other		6.2				2.6			7.2				2.8			(1.0		)		(13.9	)
Total operating revenue		235.7				100.0			253.3				100.0			(17.6		)		(6.9	)
Operating expenses:
Purchased transportation		127.5				54.1			125.8				49.7			1.7				1.4
Salaries, wages and employee benefits		50.5				21.4			50.9				20.1			(0.4		)		(0.8	)
Operating leases		13.3				5.6			12.1				4.8			1.2				9.9
Depreciation and amortization		6.7				2.8			7.5				3.0			(0.8		)		(10.7	)
Insurance and claims		5.7				2.4			6.6				2.6			(0.9		)		(13.6	)
Fuel expense		1.4				0.6			2.7				1.1			(1.3		)		(48.1	)
Other operating expenses		18.8				8.0			19.5				7.7			(0.7		)		(3.6	)
Total operating expenses		223.9				95.0			225.1				88.9			(1.2		)		(0.5	)
Income from operations		$	11.8			5.0	%		$	28.2			11.1	%		$	(16.4	)		(58.2	)%
1 Includes revenues and operating expenses from the acquisition of FSA and Linn Star, which were acquired in April 2019 and January 2020, respectively. FSA results are partially included in the prior period. Linn Star results are not included in the prior period.
2 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue.

Expedited Freight Operating Statistics
		Three months ended
		June 30,				June 30,				Percent
		2020				2019				Change
						(As Adjusted)
Business days		64				64				—	%
Tonnage 1,2
Total pounds		522,031				626,748				(16.7	)
Pounds per day		8,157				9,793				(16.7	)
Shipments 1,2
Total shipments		963				1,014				(5.0	)
Shipments per day		15.0				15.8				(5.0	)
Weight per shipment		542				618				(12.3	)
Revenue per hundredweight 3		$	26.32			$	27.39			(3.9	)
Revenue per hundredweight, ex fuel 3		$	23.09			$	22.91			0.8
Revenue per shipment 3		$	139			$	171			(18.7	)
Revenue per shipment, ex fuel 3		$	122			$	144			(15.3	)
Network revenue from door-to-door shipments as a percentage of network revenue 3,4		49.9		%		39.9		%		25.1
Network gross margin 5		50.6		%		55.8		%		(9.3	)%
1 In thousands
2 Excludes accessorial, full Truckload and Final Mile products
3 Includes intercompany revenue between the Network and Truckload revenue streams
4 Door-to-door shipments include all shipments with a pickup and/or delivery
5 Network revenue less Network purchased transportation as a percentage of Network revenue

Intermodal Segment Information
(In millions)
(Unaudited)
		Three months ended
		June 30,				Percent of			June 30,				Percent of							Percent
		2020 1				Revenue			2019				Revenue			Change				Change
Operating revenue		$	46.4			100.0	%		$	50.5			100.0	%		$	(4.1	)		(8.1	)%
Operating expenses:
Purchased transportation		14.9				32.1			18.2				36.0			(3.3		)		(18.1	)
Salaries, wages and employee benefits		11.7				25.2			12.4				24.6			(0.7		)		(5.6	)
Operating leases		4.0				8.6			4.0				7.9			—				—
Depreciation and amortization		2.6				5.6			1.8				3.6			0.8				44.4
Insurance and claims		1.8				3.9			1.7				3.4			0.1				5.9
Fuel expense		1.1				2.4			1.7				3.4			(0.6		)		(35.3	)
Other operating expenses		5.9				12.7			5.5				10.9			0.4				7.3
Total operating expenses		42.0				90.5			45.3				89.7			(3.3		)		(7.3	)
Income from operations		$	4.4			9.5	%		$	5.2			10.3	%		$	(0.8	)		(15.4	)%
1 Includes revenues and operating expenses from the acquisition of OST, which was acquired in July 2019 (and is not included in the prior period).

Intermodal Operating Statistics
		Three months ended
		June 30,				June 30,				Percent
		2020				2019				Change
Drayage shipments		68,974				76,074				(9.3	)%
Drayage revenue per shipment		$	556			$	571			(2.6	)
Number of locations		24				21				14.3	%

Forward Air Corporation
Consolidated Balance Sheets
(In thousands)
(Unaudited)
		June 30, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	80,916			$	64,749
Accounts receivable, net		130,759				136,214
Other current assets		23,745				20,403
Current assets held for sale		11,871				14,952
Total current assets		247,291				236,318
Property and equipment		381,834				373,571
Less accumulated depreciation and amortization		187,239				180,815
Total property and equipment, net		194,595				192,756
Operating lease right-of-use assets		123,925				105,170
Goodwill and other acquired intangibles:
Goodwill		240,933				215,699
Other acquired intangibles, net of accumulated amortization		148,452				124,857
Total goodwill and other acquired intangibles, net		389,385				340,556
Other assets		42,710				39,374
Noncurrent assets held for sale		74,593				76,704
Total assets		$	1,072,499			$	990,878
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	27,682			$	25,411
Accrued expenses		48,041				44,154
Other current liabilities		3,784				5,318
Current portion of debt and finance lease obligations		1,445				1,421
Current portion of operating lease obligations		42,108				35,886
Current liabilities held for sale		23,792				24,974
Total current liabilities		146,852				137,164
Debt and finance lease obligations, less current portion		136,549				72,249
Operating lease obligations, less current portion		82,404				69,678
Other long-term liabilities		58,194				56,448
Deferred income taxes		45,883				41,214
Noncurrent liabilities held for sale		36,325				36,943
Shareholders’ equity:
Common stock		277				279
Additional paid-in capital		233,086				226,869
Retained earnings		332,929				350,034
Total shareholders’ equity		566,292				577,182
Total liabilities and shareholders’ equity		$	1,072,499			$	990,878

Forward Air Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
		Three months ended
		June 30, 2020				June 30, 2019
Operating activities:
Net income from continuing operations		$	9,225			$	21,244
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations
Depreciation and amortization		9,413				9,227
Change in fair value of earn-out liability		(2,108		)		—
Share-based compensation		2,429				3,045
Loss (gain) on disposal of property and equipment, net		75				(137		)
Provision for loss on receivables		887				2
Provision for revenue adjustments		745				738
Deferred income tax expense		3,443				2,367
Changes in operating assets and liabilities
Accounts receivable		(61		)		(6,566		)
Prepaid expenses and other current assets		(493		)		(7,371		)
Income taxes		(1,962		)		(6,599		)
Accounts payable and accrued expenses		7,508				9,765
Net cash provided by operating activities of continuing operations		29,101				25,715
Investing activities:
Proceeds from disposal of property and equipment		268				624
Purchases of property and equipment		(11,563		)		(11,903		)
Acquisition of business, net of cash acquired		—				(27,000		)
Other		—				6
Net cash used in investing activities of continuing operations		(11,295		)		(38,273		)
Financing activities:
Payments of finance lease obligations		(340		)		(69		)
Proceeds from senior credit facility		—				10,000
Payments on earn-out liability		(5,284		)		—
Proceeds from exercise of stock options		—				448
Payments of cash dividends		(5,037		)		(5,144		)
Repurchase of common stock (repurchase program)		—				(24,436		)
Proceeds from common stock issued under employee stock purchase plan		294				261
Cash settlement of share-based awards for tax withholdings		(614		)		(49		)
(Distributions to) contributions from subsidiary		(3,154		)		4,159
Net cash used in financing activities from continuing operations		(14,135		)		(14,830		)
Net increase (decrease) in cash of continuing operations		3,671				(27,388		)
Cash from discontinued operations:
Cash (used in) provided by operating activities of discontinued operations, net		(3,010		)		4,523
Cash used in investing activities of discontinued operations, net		(144		)		(364		)
Cash provided by (used in) financing activities of discontinued operations, net		3,154				(4,159		)
Net increase (decrease) in cash		3,671				(27,388		)
Cash at beginning of period of continuing operations		77,245				42,165
Cash at beginning of period of discontinued operations/held for sale		—				—
Net increase (decrease) in cash		3,671				(27,388		)
Less: cash at end of period of discontinued operations/held for sale		—				—
Cash at end of period of continuing operations		$	80,916			$	14,777

Forward Air Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
		Six months ended
		June 30, 2020				June 30, 2019
Operating activities:
Net income from continuing operations		$	20,641			$	38,931
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations
Depreciation and amortization		18,747				18,515
Change in fair value of earn-out liability		(2,702		)		—
Share-based compensation		5,507				5,910
Loss (gain) on disposal of property and equipment, net		9				(218		)
Provision for loss on receivables		688				635
Provision for revenue adjustments		1,787				1,277
Deferred income tax expense		4,668				3,290
Changes in operating assets and liabilities
Accounts receivable		2,979				(3,922		)
Prepaid expenses and other current assets		312				(4,842		)
Income taxes		(341		)		(2,182		)
Accounts payable and accrued expenses		7,634				6,876
Net cash provided by operating activities of continuing operations		59,929				64,270
Investing activities:
Proceeds from disposal of property and equipment		988				1,008
Purchases of property and equipment		(14,214		)		(14,214		)
Acquisition of business, net of cash acquired		(55,931		)		(27,000		)
Net cash used in investing activities of continuing operations		(69,157		)		(40,206		)
Financing activities:
Payments of finance lease obligations		(676		)		(137		)
Proceeds from senior credit facility		65,000				10,000
Payments on earn-out liability		(5,284		)		—
Proceeds from exercise of stock options		—				1,278
Payments of cash dividends		(10,087		)		(10,333		)
Repurchase of common stock (repurchase program)		(15,259		)		(38,617		)
Proceeds from common stock issued under employee stock purchase plan		294				261
Cash settlement of share-based awards for tax withholdings		(3,286		)		(2,770		)
(Distributions to) contributions from subsidiary		(5,307		)		5,374
Net cash provided by (used in) financing activities from continuing operations		25,395				(34,944		)
Net increase (decrease) in cash of continuing operations		16,167				(10,880		)
Cash from discontinued operations:
Cash (used in) provided by operating activities of discontinued operations, net		(4,672		)		7,494
Cash used in investing activities of discontinued operations, net		(635		)		(2,120		)
Cash provided by (used in) financing activities of discontinued operations, net		5,307				(5,374		)
Net increase (decrease) in cash		16,167				(10,880		)
Cash at beginning of period of continuing operations		64,749				25,657
Cash at beginning of period of discontinued operations/held for sale		—				—
Net increase (decrease) in cash		16,167				(10,880		)
Less: cash at end of period of discontinued operations/held for sale		—				—
Cash at end of period of continuing operations		$	80,916			$	14,777

Forward Air Corporation Reconciliation of U.S. GAAP and Non-GAAP Financial Measures

The Company reports its financial results in accordance with GAAP (also referred to herein as “reported”). However, the Company also uses “Non-GAAP financial measures” that are derived on the basis of methodologies other than in accordance with GAAP. Specifically, the Company believes that meaningful analysis of its financial performance requires an understanding of the factors underlying that performance, including an understanding of items that are non-operational. Management uses these non-GAAP financial measures in making financial, operating, compensation and planning decisions and in evaluating the Company’s performance.

For the three and six months ended June 30, 2020 and 2019, this press release contains the following non-GAAP financial measures: earnings before interest, taxes, depreciation and amortization (“EBITDA”) and free cash flow. All non-GAAP financial measures are presented on a continuing operations basis.

The Company believes that EBITDA from continuing operations improves comparability from period to period by removing the impact of its capital structure (interest and financing expenses), asset base (depreciation and amortization) and tax impacts as set out in the below tables. The Company believes that free cash flow from continuing operations is an important measure of its ability to repay maturing debt or fund other uses of capital that it believes will enhance stockholder value.

Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. Non-GAAP financial information does not represent a comprehensive basis of accounting. As required by the Securities and Exchange Act of 1933 and the rules and regulations promulgated thereunder, the tables below present, for the periods indicated, a reconciliation of the Company's presented non-GAAP financial measures to the most directly comparable GAAP financial measures.

Forward Air Corporation
Reconciliation to U.S. GAAP
(In thousands)
(Unaudited)
		Three months ended								Six months ended
Continuing Operations		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Net income (GAAP)		$	9,225			$	21,244			$	20,641			$	38,931
Interest expense			1,198				581				2,051				1,156
Income tax expense			3,491				7,244				6,995				12,683
Depreciation and amortization			9,413				9,227				18,747				18,515
EBITDA (Non-GAAP)		$	23,327			$	38,296			$	48,434			$	71,285
		Three months ended								Six months ended
Continuing Operations		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Net cash provided by operating activities (GAAP)		$	29,101			$	25,715			$	59,929			$	64,270
Proceeds from disposal of property and equipment			268				624				988				1,008
Purchases of property and equipment			(11,563	)			(11,903	)			(14,214	)			(14,214	)
Free cash flow (Non-GAAP)		$	17,806			$	14,436			$	46,703			$	51,064

The following table summarizes supplemental guidance information that management believes to be useful.

Forward Air Corporation
Additional Guidance Data
(In thousands, except per share data)
(Unaudited)
		Three months ended
Actual - Continuing Operations		June 30, 2020
Net income from continuing operations		$	9,225
Income allocated to participating securities		(13		)
Numerator for diluted income per share - net income		$	9,212
Fully diluted share count		27,726
Diluted earnings per share from continuing operations		$	0.33
Projected		Full year 2020
Projected continuing operations and consolidated tax rate		26.5		%
Projected capital expenditures, net		$	26,000
Projected		December 31, 2020
Projected year-end fully diluted share count		27,500

Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements included in this press release relate to expected impact of COVID-19, full year 2020 projected tax rate, share count, capital expenditures and the declaration of dividends.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: prolonged impact of COVID-19 and actions taken to mitigate those impacts, economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, the creditworthiness of our customers and their ability to pay for services rendered, more limited liquidity than expected which limits our ability to make key investments, the availability and compensation of qualified independent owner-operators and freight handlers as well as contracted, third-party carriers needed to serve our customers’ transportation needs, the inability of our information systems to handle an increased volume of freight moving through our network, changes in fuel prices, our inability to maintain our historical growth rate because of a decreased volume of freight or decreased average revenue per pound of freight moving through our network, loss of a major customer, increasing competition and pricing pressure, our ability to secure terminal facilities in desirable locations at reasonable rates, our inability to successfully integrate acquisitions, claims for property damage, personal injuries or workers’ compensation, enforcement of and changes in governmental regulations, environmental and tax matters, insurance matters, the handling of hazardous materials and the risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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