FORWARD AIR CORP 10-Q

Item 1. Financial Statements (Unaudited). Forward Air Corporation Condensed Consolidated Balance Sheets (unaudited and in thousands, except share and per share amounts) March 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 61,630 $ 37,316 Accounts receivable, less allowance of $ 3,298 in 2022 and $ 3,260 in 2021 236,666 208,085 Other receivables 4,488 8,097 Other current assets 22,468 29,309 Total current assets 325,252 282,807 Property and equipment, net of accumulated depreciation and amortization of $ 206,980 in 2022 and $ 200,867 in 2021 224,060 219,095 Operating lease right-of-use assets 153,337 148,198 Goodwill 265,639 266,752 Other acquired intangibles, net of accumulated amortization of $ 111,415 in 2022 and $ 107,337 in 2021 150,638 154,717 Other assets 47,880 46,254 Total assets $ 1,166,806 $ 1,117,823 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 54,430 $ 44,837 Accrued expenses 66,467 61,621 Other current liabilities 12,479 4,614 Current portion of debt and finance lease obligations 6,069 6,088 Current portion of operating lease liabilities 48,499 47,532 Total current liabilities 187,944 164,692 Finance lease obligations, less current portion 8,767 9,571 Long-term debt, less current portion and debt issuance costs 155,125 155,466 Operating lease liabilities, less current portion 105,773 101,409 Other long-term liabilities 52,376 49,624 Deferred income taxes 45,050 43,407 Shareholders’ equity: Preferred stock, $ 0.01 par value: Authorized shares - 5,000,000 ; no shares issued or outstanding in 2022 and 2021 — — Common stock, $ 0.01 par value: Authorized shares - 50,000,000 ; issued and outstanding shares - 26,861,667 in 2022 and 26,968,788 in 2021 269 270 Additional paid-in capital 261,444 258,474 Retained earnings 350,058 334,910 Total shareholders’ equity 611,771 593,654 Total liabilities and shareholders’ equity $ 1,166,806 $ 1,117,823 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Table of Contents Forward Air Corporation Condensed Consolidated Statements of Comprehensive Income (unaudited and in thousands, except per share amounts) Three Months Ended March 31, 2022 March 31, 2021 Operating revenues $ 466,961 $ 362,202 Operating expenses: Purchased transportation 224,832 184,608 Salaries, wages and employee benefits 86,081 74,897 Operating leases 22,673 19,167 Depreciation and amortization 11,130 9,237 Insurance and claims 11,968 9,741 Fuel expense 5,865 3,702 Other operating expenses 47,061 38,126 Total operating expenses 409,610 339,478 Income from continuing operations 57,351 22,724 Other expense: Interest expense ( 784 ) ( 1,165 ) Total other expense ( 784 ) ( 1,165 ) Income before income taxes 56,567 21,559 Income tax expense 13,881 4,845 Net income from continuing operations 42,686 16,714 Loss from discontinued operation, net of tax — ( 5,533 ) Net income and comprehensive income $ 42,686 $ 11,181 Basic net income (loss) per share Continuing operations $ 1.57 $ 0.61 Discontinued operation — ( 0.20 ) Net income per basic share $ 1.57 $ 0.40 Diluted net income (loss) per share Continuing operations $ 1.57 $ 0.60 Discontinued operation — ( 0.20 ) Net income per diluted share $ 1.57 $ 0.40 Dividends per share $ 0.24 $ 0.21 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Table of Contents Forward Air Corporation Condensed Consolidated Statements of Cash Flows (unaudited and in thousands) Three Months Ended March 31, 2022 March 31, 2021 Operating activities: Net income from continuing operations $ 42,686 $ 16,714 Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations Depreciation and amortization 11,130 9,237 Change in fair value of earn-out liability ( 294 ) ( 48 ) Share-based compensation expense 2,761 2,597 Provision for revenue adjustments 1,304 1,777 Deferred income tax expense (benefit) 1,643 ( 505 ) Other 132 92 Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses: Accounts receivable ( 30,278 ) ( 28,023 ) Other receivables 3,609 ( 13,339 ) Other current and noncurrent assets 13,818 7,085 Accounts payable and accrued expenses 15,975 21,326 Net cash provided by operating activities of continuing operations 62,486 16,913 Investing activities: Proceeds from sale of property and equipment 511 665 Purchases of property and equipment ( 9,908 ) ( 2,695 ) Purchases of a business, net of cash acquired — ( 15,000 ) Net cash used in investing activities of continuing operations ( 9,397 ) ( 17,030 ) Financing activities: Repayments of finance lease obligations ( 1,070 ) ( 467 ) Payments on credit facility ( 375 ) — Proceeds from issuance of common stock upon stock option exercises 206 2,147 Payments of dividends to shareholders ( 6,502 ) ( 5,797 ) Repurchases and retirement of common stock ( 17,780 ) ( 9,998 ) Payment of minimum tax withholdings on share-based awards ( 3,254 ) ( 2,744 ) Contributions from subsidiary held for sale — 1,118 Net cash used in financing activities from continuing operations ( 28,775 ) ( 15,741 ) Net increase (decrease) in cash and cash equivalents of continuing operations 24,314 ( 15,858 ) Cash from discontinued operation: Net cash used in operating activities of discontinued operation — ( 6,902 ) Net cash provided by investing activities of discontinued operation — 8,020 Net cash used in financing activities of discontinued operation — ( 1,118 ) Net increase (decrease) in cash and cash equivalents 24,314 ( 15,858 ) Cash and cash equivalents at beginning of period of continuing operations 37,316 40,254 Cash at beginning of period of discontinued operation — — Net increase (decrease) in cash and cash equivalents 24,314 ( 15,858 ) Less: cash at end of period of discontinued operation — — Cash and cash equivalents at end of period of continuing operations $ 61,630 $ 24,396 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Table of Contents Forward Air Corporation Condensed Consolidated Statements of Shareholders’ Equity (unaudited and in thousands) Common Stock Additional Paid-in Capital Retained Earnings Total Shareholders’ Equity Shares Amount Balance at December 31, 2021 26,969 $ 270 $ 258,474 $ 334,910 $ 593,654 Net income — — — 42,686 42,686 Stock options exercised 3 — 206 — 206 Share-based compensation expense — — 2,761 — 2,761 Payment of dividends to shareholders — — 4 ( 6,506 ) ( 6,502 ) Payment of minimum tax withholdings on share-based awards ( 30 ) — — ( 3,254 ) ( 3,254 ) Repurchases and retirement of common stock ( 176 ) ( 2 ) — ( 17,778 ) ( 17,780 ) Issuance of share-based awards 96 1 ( 1 ) — — Balance at March 31, 2022 26,862 $ 269 $ 261,444 $ 350,058 $ 611,771 Common Stock Additional Paid-in Capital Retained Earnings Total Shareholders’ Equity Shares Amount Balance at December 31, 2020 27,316 $ 273 $ 242,916 $ 304,140 $ 547,329 Net income — — — 11,181 11,181 Stock options exercised 40 — 2,147 — 2,147 Share-based compensation expense — — 2,613 — 2,613 Payment of dividends to shareholders — — 3 ( 5,800 ) ( 5,797 ) Payment of minimum tax withholdings on share-based awards ( 35 ) — — ( 2,744 ) ( 2,744 ) Repurchases and retirement of common stock ( 114 ) ( 1 ) — ( 9,997 ) ( 9,998 ) Issuance of share-based awards 111 1 ( 1 ) — — Balance at March 31, 2021 27,318 $ 273 $ 247,678 $ 296,780 $ 544,731 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 1. Description of Business and Basis of Presentation Basis of Presentation and Principles of Consolidation Forward Air Corporation and its subsidiaries (“Forward Air ” or the “Company ” ) is a leading asset-light freight and logistics company. The Company has two reportable segments: Expedited Freight and Intermodal. The Company conducts business in the United States and Canada. The Expedited Freight segment provides expedited regional, inter-regional and national less-than-truckload (“LTL ” ), truckload and final mile services. Expedited Freight also offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. The Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station (“CFS ” ) warehouse and handling services. The Company’s condensed consolidated financial statements include Forward Air Corporation and it's wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Results for interim periods are not necessarily indicative of the results for the year. On April 23, 2020, the Board of Directors (the “Board ”) of the Company approved a strategy to divest of the Pool Distribution business (“Pool ” ), and the sale of Pool was completed on February 12, 2021. Pool provided high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. As a result of the strategy to divest of Pool, the results of operations for Pool were presented as a discontinued operation in the Condensed Consolidated Statements of Comprehensive Income for the prior period. Unless otherwise noted, amounts, percentages and discussion for the prior period reflect the results of operations, financial condition and cash flows from the Company’s continuing operations. Refer to Note 3, Discontinued Operation , for further discussion. 2. Revenue Recognition Revenue is recognized when the Company satisfies the performance obligation by the delivery of a shipment in accordance with contractual agreements, bills of lading (“BOLs”) and general tariff provisions. The amount of revenue recognized is measured as the consideration the Company expects to receive in exchange for those services pursuant to a contract with a customer. A contract exists once the Company enters into a contractual agreement with a customer. The Company does not recognize revenue in cases where collectibility is not probable, and defers recognition until collection is probable or payment is received. The Company generates revenue from the delivery of a shipment and the completion of related services. Revenue for the delivery of a shipment is recorded over time to coincide with when customers simultaneously receive and consume the benefits of the delivery services. Accordingly, revenue billed to a customer for the transportation of freight are recognized over the transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a shipment based on the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of a reporting period. The determination of the transit period and how much of it has been completed as of a given reporting date may require the Company to make judgments that impact the timing of revenue recognized. For delivery of shipments with a pick-up date in one reporting period and a delivery date in another reporting period, the Company recognizes revenue based on relative transit 7 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 time in each reporting period. A portion of the total revenue to be billed to the customer after completion of a delivery is recognized in each reporting period based on the percentage of total transit time that has been completed at the end of the applicable reporting period. Upon delivery of a shipment or related service, customers are billed according to the applicable payment terms. Related services are a separate performance obligation and include accessorial charges such as terminal handling, storage, equipment rentals and customs brokerage. Revenue is classified based on the line of business as the Company believes that best depicts the nature, timing and amount of revenue and cash flows. For all lines of business, the Company records revenue on a gross basis as it is the principal in the transaction as the Company has discretion to determine the amount of consideration. Additionally, the Company has the discretion to select drivers and other vendors for the services provided to customers. These factors, discretion in the amount of consideration and the selection of drivers and other vendors, support revenue recognized on a gross basis. 3. Discontinued Operation As previously disclosed, on April 23, 2020, the Company made a decision to divest of Pool and the sale was completed on February 12, 2021. As a result, the results of Pool were classified to “Loss from discontinued operation, net of tax” in the Condensed Consolidated Statements of Comprehensive Income for three months ended March 31, 2021. Certain corporate overhead and other costs previously allocated to Pool for segment reporting purposes did not qualify for classification within discontinued operation and were allocated to continuing operations. These costs were classified to the eliminations column in the segment reconciliation in Note 13, Segment Reporting . Transition Services Agreement On February 12, 2021, the Company entered into a Transition Services Agreement (“TSA ” ) with TOG FAS Holdings LLC, the buyer of the Pool business. Under the TSA, the Company performed certain services on an interim basis in order to facilitate the orderly transition of the Pool business. The effective date of the TSA was February 12, 2021 and remained in effect until the date all services were completed, but no more than six months following the effective date. The TSA provided the right to extend the term of the TSA with no limit on the number of the mutually agreed upon extensions. In exchange for the services performed by the Company under the TSA, the Company received a monthly service charge. For the three months ended March 31, 2021, the Company recognized $ 171 in “Other operating expenses ” in the Condensed Consolidated Statements of Comprehensive Income, for the services performed under the TSA. The TSA ended in October 2021 when all services were completed. Additionally, under the TSA, the Company remitted payments to outside vendors on behalf of TOG FAS Holdings LLC for expenses incurred by the Pool business up to a limit of $ 18,000 . The Company was reimbursed by TOG FAS Holdings LLC within 60 days from the end of the month in the payment was remitted. As of March 31, 2022 and December 31, 2021, the Company recorded a receivable in the amount of $ 4,488 and $ 8,097 respectively, in “Other receivables ” in the Condensed Consolidated Balance Sheets for the reimbursement due to the Company. The Company evaluates the collectability of the receivables at least quarterly and if the Company is aware of the inability of TOG FAS Holdings LLC to meet its financial obligations to the Company, the Company will record a specific reserve in order to reduce the receivable to the amount the Company reasonably believes will be collected. The Company believes collectibility of the receivable is probable as of March 31, 2022. 8 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 Summarized Discontinued Operation Financial Information A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 is as follows: March 31, 2021 Operating revenue $ 17,087 Operating expenses: Purchased transportation 4,290 Salaries, wages and employee benefits 9,674 Operating leases 2,907 Depreciation and amortization — Insurance and claims 929 Fuel expense 644 Other operating expenses 2,087 Total operating expenses 20,531 Loss from discontinued operation ( 3,444 ) Loss on sale of business ( 2,860 ) Loss from discontinued operation before income taxes ( 6,304 ) Income tax benefit ( 771 ) Loss from discontinued operation, net of tax $ ( 5,533 ) 4. Acquisitions Intermodal Acquisitions In February 2021, the Company acquired certain assets and liabilities of Proficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport ” ) for $ 16,339 and a potential earn-out of up to $ 2,000 . The purchase agreement for Proficient Transport included an earn-out up to $ 2,000 based on the achievement of certain revenue milestones over a one-year period, beginning March 1, 2021. The estimated fair value of the earn-out liability on the date of acquisition was $ 829 . The fair value was based on the estimated one-year performance of the acquired customer revenue and was calculated using the option pricing method. The fair value of the earn-out liability was adjusted at each reporting period based on changes in the expected cash flows and related assumptions used in the option pricing method. During the three months ended March 31, 2022 and 2021, the fair value of the earn-out changed by ($ 294 ) and ($ — ) respectively, and the change in fair value was recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income. As of March 31, 2022 and December 31, 2021, the fair value of the earn-out liability was $ 91 and $ 385 respectively, which was reflected in “Other current liabilities” in the Condensed Consolidated Balance Sheets. In November 2021, the Company acquired certain assets and liabilities of BarOle Trucking, Inc. ( “BarOle”) for $ 35,436 . BarOle is an intermodal drayage company headquartered in Roseville, Minnesota. The acquisition of BarOle provides additional capacity and resources to meet customer demands in the intermodal market, and extends the service footprint to the Minneapolis-Saint Paul, Minnesota area. In addition, BarOle has a larger terminal location, which allows for further expansion in the future. The acquisition was financed by cash flows from operations. The results of BarOle have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Intermodal reportable segment. 9 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 Fair Value of Assets Acquired and Liabilities Assumed Assets acquired and liabilities assumed as of the acquisition date for BarOle are summarized in the following table: November 30, 2021 Tangible assets: Accounts receivable $ 2,481 Property and equipment 6,464 Total tangible assets 8,945 Intangible assets: Customer relationships 16,282 Non-compete agreements 913 Goodwill 9,564 Total intangible assets 26,759 Total assets acquired 35,704 Liabilities assumed: Current liabilities 268 Total liabilities assumed 268 Net assets acquired $ 35,436 The preliminary purchase price for BarOle has been allocated to assets acquired and liabilities assumed based on the the Company’s best estimates and assumptions using the information available as of the acquisition date through the date of this filing. The provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to these acquisitions are subject to adjustments in subsequent periods as the Company finalizes its purchase price allocation, including the third-party valuations. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date. The estimated useful life of acquired intangible assets as of the acquisition date for BarOle are summarized in the following table: Estimated Useful Lives Customer relationships 8 years Non-compete agreements 5 years 10 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 5. Goodwill and Intangible Assets Goodwill Changes in the carrying amount of goodwill during the three months ended March 31, 2022 are summarized as follows: Expedited Freight Intermodal Consolidated Balance as of December 31, 2021 $ 169,288 $ 97,464 $ 266,752 Acquisition adjustment — ( 1,113 ) ( 1,113 ) Balance as of March 31, 2022 $ 169,288 $ 96,351 $ 265,639 The Company ’ s accumulated goodwill impairment is $ 25,686 related to impairment charges the Company recorded during 2016 pertaining to its TLS reporting unit. The TLS reporting unit operates within the Expedited Freight reportable segment. As of March 31, 2022, approximately $ 186,495 of goodwill is deductible for tax purposes. Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of June 30 each year. There have been no indicators of impairment during the three months ended March 31, 2022. Other Intangible Assets Changes in the carrying amount of acquired intangible assets during the three months ended March 31, 2022 are summarized as follows: Gross Carrying Amount Customer Relationships 1 Non-Compete Agreements Trade Names Total Balance as of December 31, 2021 $ 251,377 $ 9,176 $ 1,500 $ 262,053 Acquisition — — — — Balance as of March 31, 2022 $ 251,377 $ 9,176 $ 1,500 $ 262,053 Accumulated Amortization Customer Relationships 1 Non-Compete Agreements Trade Names Total Balance as of December 31, 2021 $ 99,094 $ 6,743 $ 1,500 $ 107,337 Amortization expense 3,782 296 — 4,078 Balance as of March 31, 2022 $ 102,876 $ 7,039 $ 1,500 $ 111,415 1 Carrying value as of March 31, 2022 and December 31, 2021 is inclusive of $ 16,501 of accumulated impairment. 11 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 6. Stock Incentive Plans Stock Incentive Plan The Company recorded share-based compensation expense as follows for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 March 31, 2021 Salaries, wages and employee benefits - continuing operations $ 2,422 $ 2,269 Salaries, wages and employee benefits - discontinued operation — 16 Total share-based compensation expense $ 2,422 $ 2,285 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, 2022, appro ximately 649 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, 2022 on a continuing operations basis were as follows: Stock Options Weighted-Average Exercise Price Outstanding as of January 1 342 $ 58.44 Granted 64 106.13 Exercised ( 3 ) 60.42 Forfeited — — Outstanding as of March 31 403 $ 65.95 As of March 31, 2022, the total share-based compensation expense related to unvested stock options not yet recognized was $ 2,343 , and the weighted-average period over which it is expected to be recognized is approximately three years . Restricted Shares The Company’s primary long-term incentive plan is a restricted share award plan that entitles employees to receive a share 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. 12 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 Restricted share transactions on a continuing operations basis during the three months ended March 31, 2022 were as follows: Restricted Shares Weighted-Average Grant Date Fair Value Outstanding as of January 1 191 $ 69.84 Granted 77 106.24 Vested ( 89 ) 67.39 Forfeited ( 3 ) 87.11 Outstanding as of March 31 176 $ 86.70 As of March 31, 2022, the total share-based compensation expense related to restricted shares not yet recognized was $ 14,051 , and the weighted-average period over which it is expected to be recognized is approximately two years . Performance Awards Performance awards are based on achieving certain financial targets, such as targets for earnings before interest, taxes, depreciation and amortization, and the Company’s total shareholder return as compared to the total shareholder return of a selected peer group, as determined by the Board. Performance targets are set at the beginning of each three-year measurement period. Share-based compensation expense associated with these awards is amortized ratably over the vesting period. Depending on the financial target, the compensation expense is determined based on the projected assessment of the level of performance that will be achieved. The Company estimates the fair value of the grants with a financial target based on the Company’s total shareholder return using a Monte Carlo simulation model. Performance award transactions during the three months ended March 31, 2022 on a continuing operations basis were as follows assuming target levels of performance: Performance Awards Weighted-Average Grant Date Fair Value Outstanding as of January 1 79 $ 75.61 Granted 14 127.29 Earned ( 7 ) 63.40 Forfeited or unearned ( 7 ) 59.41 Outstanding as of March 31 79 $ 87.69 As of March 31, 2022, the total share-based compensation expense related to unearned performance awards not yet recognized, assuming the Company’s current projected assessment of the level of performance that will be achieved, was $ 4,949 , and the weighted-average period over which it is expected to be recognized is approximately two years . Employee Stock Purchase Plan Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue up to a remaining 323 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 th e first day or the last day of each six-month purchase period. Common stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions. No shares were issued during the three months ended March 31, 2022. 13 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 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, 2022, approxim ately 75 shares re main available for grant under the Amended Plan. Under the Amended Plan, each non-employee director receives an annual grant of restricted shares of the Company’s common stock. The restricted shares vest on the either of (a) the day immediately prior to the first annual shareholder meeting that occurs after the grant date or (b) one year after the grant date. Director restricted share transactions during the three months ended March 31, 2022 were as follows: Director Restricted Shares Weighted-Average Grant Date Fair Value Outstanding as of January 1 15 $ 93.46 Granted — — Vested — — Forfeited — — Outstanding as of March 31 15 $ 93.46 For the three months ended March 31, 2022 and 2021, the Company recorded $ 339 and $ 328 , respectively, of share-based compensation expense associated with these grants. As of March 31, 2022, the total share-based compensation expense related to the restricted shares not yet recognized was $ 188 , and the weighted-average period over which it is expected to be recognized is approximately less than one year . 7. Indebtedness Long-term debt consisted of the following as of March 31, 2022 and December 31, 2021: March 31, 2022 December 31, 2021 Credit facility, expires 2026 $ 157,125 $ 157,500 Debt issuance costs ( 505 ) ( 534 ) 156,620 156,966 Less: Current portion of long-term debt ( 1,495 ) ( 1,500 ) Total long-term debt, less current portion $ 155,125 $ 155,466 14 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 In September 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a maximum aggregate principal amount of $ 150,000 , with a sublimit of $ 30,000 for letters of credit and a sublimit of $ 30,000 for swing line loans. The maturity date of the Facility was September 29, 2022. In April 2020, the Company entered into the first amendment to the Facility, which increased the maximum aggregate principal amount to $ 225,000 . The Facility could have been increased by up to $ 25,000 to a maximum aggregate principal amount of $ 250,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. In July 2021, the Company entered into the second amendment to the Facility, which extended the maturity date to July 20, 2026 and changed the interest rate options available under the Facility. In December 2021, the Company entered into the third amendment to the Facility, which increased the amount available for borrowing under the Facility to $ 450,000 , consisting of a $ 300,000 revolving line of credit and a term loan of $ 150,000 . In connection with the third amendment, the Company borrowed $ 150,000 under the term loan and simultaneously repaid $ 150,000 on the revolving line of credit from the borrowings received. Under the third amendment, the Facility may be increased by up to $ 75,000 to a maximum aggregate principal amount of $ 525,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a combination thereof, and are contingent upon there being no events of default under the Facility. As of both March 31, 2022 and December 31, 2021, the Company had $ 272,466 of available borrowing capacity under the Facility. The Facility contains covenants that, among other things, restrict the ability of the Company, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the credit agreement. The Company also has to fulfill financial covenants with respect to a leverage ratio and an interest coverage ratio. As of March 31, 2022, the Company was in compliance with the aforementioned covenants. Under the amended Facility, interest accrues on the amounts outstanding under the Facility at the Company ’s option, at either (1) Bloomberg Short-Term Bank Yield Index rate (the “BSBY Rate ”), which cannot be less than zero , plus a margin ranging from 1.25 % to 1.75 % based on the Company ’s leverage ratio, or (2) the base rate, which cannot be less than 2.00 %. The base rate is the highest of (i) the federal funds rate, which cannot be less than zero , plus 0.50 %, (ii) the administrative agent ’s prime rate and (iii) the BSBY Rate, which cannot be less than zero , plus 1.00 %, plus a margin ranging from 0.00 % to 0.50 % based on the Company ’s leverage ratio. Interest is payable in arrears for each loan that is based on the BSBY rate on the last day o f the interest period applicable to each loan, and interest is payable in arrears on loans not based on the BSBY rate on the last day of each quarter. The weighted average interest rate on the outstanding borrowings under the revolving credit facility was 1.44 % and 3.25 % for the three months ended March 31, 2022, and 2021, respectively. Previously, under the Facility, interest accrued on the amounts outstanding under the Facility, at the Company’s option, at either (1) London Interbank Offered Rate (“LIBOR ” ) rate, not less than 1.00 %, plus a margin ranging from 2.25 % to 2.75 % based on the Company’s leverage ratio, or (2) base rate, which cannot be less than 3.00 %. The base rate was the highest of (i) the federal funds rate, not less than zero , plus 0.50 %, (ii) the administrative agent’s prime rate and (iii) the LIBOR rate, not less than 1.00 %, plus 1.00 %, plus a margin ranging from 0.25 % to 0.75 % based on the Company’s leverage ratio. Interest was payable in arrears for each loan that was based on the LIBOR rate on the last day of the interest period applicable to each loan, and interest was payable in arrears on loans not based on the LIBOR rate on the last day of each quarter. Letters of Credit The Company has an arrangement under the Facility to issue letters of credit, which guarantee the Company’s obligations for potential claims exposure for insurance coverage. As of both March 31, 2022 and December 31, 2021, outstanding letters of credit totaled $ 20,034 . 15 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 8. Net Income (Loss) Per Share Basic net income (loss) per common share is computed by dividing net income (loss) 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 (loss) per common share pursuant to the two-class method. Diluted net income (loss) 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 (loss) attributable to Forward Air and weighted-average common shares outstanding for purposes of calculating basic and diluted net income (loss) per share during the three months ended March 31, 2022 and 2021 is as follows: Three Months Ended March 31, 2022 March 31, 2021 Numerator: Net income and comprehensive income from continuing operations $ 42,686 $ 16,714 Net loss and comprehensive loss from discontinued operation — ( 5,533 ) Net income attributable to Forward Air $ 42,686 $ 11,181 Income allocated to participating securities from continuing operations ( 248 ) ( 101 ) Loss allocated to participating securities from discontinued operation — — Income allocated to participating securities ( 248 ) ( 101 ) Numerator for basic and diluted net income per share for continuing operations $ 42,438 $ 16,613 Numerator for basic and diluted net loss per share for discontinued operation $ — $ ( 5,533 ) Denominator: Denominator for basic net income per share - weighted-average number of common shares outstanding 26,947 27,361 Dilutive stock options and performance share awards 153 136 Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding 27,100 27,497 Basic net income (loss) per share: Continuing operations $ 1.57 $ 0.61 Discontinued operation — ( 0.20 ) Net income per basic share 1 $ 1.57 $ 0.40 Diluted net income (loss) per share: Continuing operations $ 1.57 $ 0.60 Discontinued operation — ( 0.20 ) Net income per diluted share $ 1.57 $ 0.40 1 Rounding may impact summation of amounts. 16 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 The number of shares that were not included in the calculation of net income (loss) per diluted share because to do so would have been anti-dilutive for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, 2022 March 31, 2021 Anti-dilutive stock options 64 25 Anti-dilutive performance shares 14 3 Anti-dilutive restricted shares and deferred stock units — 1 Total anti-dilutive shares 78 29 9. Income Taxes For the three months ended March 31, 2022 and 2021, the Company recorded income tax expense of $ 13,881 and $ 4,845 , respectively, for continuing operations. The effective tax rate of 24.5 % for the three months ended March 31, 2022 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards. The effective tax rate of 22.5 % for the three months ended March 31, 2021 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, 2022 and December 31, 2021, the Company had $ 241 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. As of both March 31, 2022 and December 31, 2021, the Company had accrued interest and penalties related to unrecognized tax benefits of $ 88 . 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 2014. The sale of Pool resulted in a capital loss in the amount of $ 4,230 , which expires in 2026. The Company concluded that it was more likely than not the capital loss carryforward will not be realized and therefore, established a valuation allowance of $ 4,230 to reserve against its capital loss carryforward. The Company also maintains a valuation allowance to reserve against its state net operating loss carryforwards of $ 395 . A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies. In making this assessment, all available evidence was considered including economic climate, as well as reasonable tax planning strategies. The Company believes it is more likely than not that it will realize its remaining net deferred tax assets, net of the valuation allowance, in future years. 17 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 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. As previously discussed in Note 4, Acquisitions, the estimated fair value of the earn-out liability was determined using the option pricing method. The significant inputs used to calculate the estimated fair value are derived from a combination of observable and unobservable market data. Observable inputs used in the option pricing method include the risk-free rate and the revenue volatility while unobservable inputs include the revenue discount rate and the estimated revenue projections. Assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are summarized below: As of March 31, 2022 Level 1 Level 2 Level 3 Total Earn-out liability $ — $ — $ 91 $ 91 As of December 31, 2021 Level 1 Level 2 Level 3 Total Earn-out liability $ — $ — $ 385 $ 385 Cash and cash equivalents, 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. The carrying amount of long-term debt under the Company’s credit facility approximate fair value based on the borrowing rates currently available to the Company for a loan with similar terms and average maturity. As of March 31, 2022, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $ 13,203 , compared to its carrying value of $ 13,341 . As of December 31, 2021, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $ 14,312 , compared to its carrying value of $ 14,159 . 18 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 11. Shareholders’ Equity Cash Dividends During the first quarter of 2022, the Board declared and the Company has paid a quarterly cash dividend of $ 0.24 per common share. During each quarter of 2021, the Company’s Board of Directors declared and the Company has paid a quarterly cash dividend of $ 0.21 per common share On April 25, 2022, the Board declared a quarterly cash dividend of $ 0.24 per common share that will be paid in the second quarter of 2022. Share 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, 2022, the Company repurchased through open market transactions 176 shares of common stock for $ 17,780 , or an average of $ 100.86 per share, and during the three months ended March 31, 2021, the Company repurchased through open market transactions 114 shares of common stock for $ 9,997 , or an average of $ 87.89 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, 2022, the remaining shares permitted to be repurchased under the 2019 Repurchase Plan were approximately 2,657 shares. 12. Commitments and Contingencies Contingencies The Company is party to various legal claims and actions incidental to its business, including claims related to vehicle liability, workers’ compensation, property damage and employee medical benefits. The Company accrues for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Based on the knowledge of the facts, the Company believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on its 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. 19 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 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 through $ 10,000 : Company Risk Retention Frequency Layer Policy Term Expedited Freight¹ LTL business $ 3,000 Occurrence/Accident² $ 0 to $ 3,000 10/1/2021 to 10/1/2022 Truckload business $ 2,000 Occurrence/Accident² $ 0 to $ 2,000 10/1/2021 to 10/1/2022 LTL business $ 6,000 Policy Term Aggregate³ $ 3,000 to $ 5,000 10/1/2021 to 10/1/2022 LTL, Truckload and Intermodal businesses $ 2,500 Policy Term Aggregate³ $ 5,000 to $ 10,000 10/1/2021 to 10/1/2022 Intermodal $ 1,000 Occurrence/Accident² $ 0 to $ 1,000 10/1/2021 to 10/1/2022 ¹ Excluding the Final Mile business, which is primarily a brokered service. ² For each and every accident, the Company is responsible for damages and defense up to these amounts, regardless of the number of claims associated with any accident. ³ During the Policy Term, the Company is responsible for damages and defense within the stated Layer up to the stated, aggregate amount of Company Risk Retention before insurance will respond. Also, from time to time, when brokering freight, the Company may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and the Company maintains third-party liability insurance coverage with a $ 100 deductible per occurrence for most of its brokered services. Additionally, the Company maintains workers’ compensation insurance with a self-insured retention of $ 500 per occurrence. Insurance coverage in excess of the self-insured retention limit is an important part of the Company’s risk management process. The Company accrues for the costs of the uninsured portion of pending claims within the self-insured retention based on the nature and severity of individual claims and historical claims development trends. The Company believes the recorded reserves are sufficient for all incurred claims up to the self-insured retention limits, including an estimate for claims incurred but not reported. However, estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult, and the Company may fail to establish sufficient insurance reserves and adequately estimate for future insurance claims. Since the ultimate resolution of outstanding claims as well as claims incurred but not reported is uncertain, it is possible that the reserves recorded for these losses could change materially in the near term. Although, an estimate cannot be made of the range of additional loss that is at least reasonably possible. 13. Segment Reporting The Company has two reportable segments: Expedited Freight and Intermodal. The Company evaluates segment performance based on income from operations. Segment results include intersegment revenues and shared costs. Costs related to the corporate headquarters, shared services and shared assets, such as trailers, are allocated to each segment based on usage. Shared assets are not allocated to each segment, but rather the shared assets, such as trailers, are allocated to the Expedited Freight segment. Corporate includes revenues and expenses as well as assets that are not attributable to any of the Company’s reportable segments. The accounting policies applied to each segment are the same as those described in the Summary of Significant Accounting Policies as disclosed in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2021, 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. 20 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 Segment results from operations for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, 2022 Expedited Freight Intermodal Corporate Eliminations Consolidated - Continuing Operations External revenues $ 376,526 $ 90,435 $ — $ — $ 466,961 Intersegment revenues 65 5 — ( 70 ) — Depreciation 5,673 1,340 39 — 7,052 Amortization 1,808 2,270 — — 4,078 Income (loss) from continuing operations 47,680 11,146 ( 1,475 ) — 57,351 Purchases of property and equipment 8,956 952 — — 9,908 Three Months Ended March 31, 2021 Expedited Freight Intermodal Corporate Eliminations Consolidated - Continuing Operations External revenues $ 303,531 $ 58,502 $ — $ — $ 362,033 Intersegment revenues 655 12 — ( 498 ) 169 Depreciation 4,993 799 3 — 5,795 Amortization 1,805 1,637 — — 3,442 Income (loss) from continuing operations 24,530 4,509 ( 6,315 ) — 22,724 Purchases of property and equipment 2,411 284 — — 2,695 Total Assets As of March 31, 2022 $ 802,613 $ 251,030 $ 113,184 $ ( 21 ) $ 1,166,806 As of December 31, 2021 777,987 249,467 90,588 ( 219 ) 1,117,823 A reconciliation from the segment information to the consolidated balances for revenues is set forth below: Three Months Ended March 31, 2022 March 31, 2021 Intersegment revenues - continuing operations $ — $ 169 Intersegment revenues - discontinued operation — ( 169 ) Consolidated intersegment revenues $ — $ — 21 Table of Contents Forward Air Corporation Notes to Condensed Consolidated Financial Statements (unaudited and in thousands, except per share data) March 31, 2022 Revenue from the individual services within the Expedited Freight segment for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, 2022 March 31, 2021 Expedited Freight revenues: Network $ 243,414 $ 178,627 Truckload 55,908 52,380 Final Mile 65,758 62,256 Other 11,511 10,923 Total $ 376,591 $ 304,186 14. Subsequent Event On May 06, 2022, the Company entered into an agreement to acquire certain assets and liabilities of Edgmon Trucking, LLC (“Edgmon”) for $ 40,000 . Edgmon, headquartered in Kent, Washington, operates a terminal in Kent and a yard in Seattle, servicing both the Port of Seattle and the Port of Tacoma. The acquisition of Edgmon marks the Company’s first Intermodal location on the West Coast, a key area of expansion in the Intermodal strategic growth plan. The transaction is expected to close in the second quarter of 2022. 22