10-Q 1 fwrd-20230930.htm 10-Q fwrd-20230930
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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 September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-22490
logo.jpg
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee62-1120025
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
1915 Snapps Ferry RoadBuilding NGreenevilleTN37745
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code: (423) 636-7000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueFWRDThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer¨Non-accelerated filer¨Smaller reporting 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 November 7, 2023 was 25,662,063.


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

2
Part I.Financial Information
  
Item 1.Financial Statements (Unaudited).
Forward Air Corporation
Condensed Consolidated Balance Sheets
(unaudited and in thousands, except share and per share amounts)
 September 30, 2023December 31, 2022
Assets
Current assets:  
Cash and cash equivalents$18,843 $45,822 
   Accounts receivable, less allowance of $2,852 in 2023 and $3,158 in 2022
191,758 221,028 
Other current assets27,129 37,465 
Total current assets237,730 304,315 
Property and equipment, net of accumulated depreciation and amortization of $243,032 in 2023 and $220,669 in 2022
258,248 249,080 
Operating lease right-of-use assets134,726 141,865 
Goodwill356,763 306,184 
Other acquired intangibles, net of accumulated amortization of $136,802 in 2023 and $123,325 in 2022
146,710 154,801 
Other assets56,404 51,831 
Total assets$1,190,581 $1,208,076 
Liabilities and Shareholders’ Equity 
Current liabilities:  
Accounts payable$45,702 $54,601 
Accrued expenses56,552 54,291 
Other current liabilities21,619 3,956 
Current portion of debt and finance lease obligations15,053 9,444 
Current portion of operating lease liabilities51,515 47,106 
Total current liabilities190,441 169,398 
Finance lease obligations, less current portion23,387 15,844 
Long-term debt, less current portion and debt issuance costs118,857 106,588 
Operating lease liabilities, less current portion87,938 98,865 
Other long-term liabilities50,966 59,044 
Deferred income taxes53,292 51,093 
Shareholders’ equity:  
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued or outstanding in 2023 and 2022
— — 
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 25,662,063 in 2023 and 26,461,293 in 2022
257 265 
Additional paid-in capital280,640 270,855 
Retained earnings384,803 436,124 
Total shareholders’ equity665,700 707,244 
Total liabilities and shareholders’ equity$1,190,581 $1,208,076 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
    
Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(unaudited and in thousands, except per share amounts)
 Three Months Ended
 September 30, 2023September 30, 2022
Operating revenues$413,447 $510,023 
Operating expenses: 
Purchased transportation190,766 229,326 
Salaries, wages and employee benefits88,159 90,755 
Operating leases22,662 24,965 
Depreciation and amortization15,506 12,269 
Insurance and claims13,626 12,093 
Fuel expense5,917 6,772 
Other operating expenses61,318 62,178 
Total operating expenses397,954 438,358 
Income from operations15,493 71,665 
Other expense: 
Interest expense, net(2,655)(1,544)
Total other expense(2,655)(1,544)
Income before income taxes12,838 70,121 
Income tax expense3,550 17,988 
Net income and comprehensive income $9,288 $52,133 
Net income per share
Basic $0.36 $1.94 
Diluted$0.36 $1.93 
Dividends per share$0.24 $0.24 


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


4
Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(unaudited and in thousands, except per share amounts)
 Nine Months Ended
 September 30, 2023September 30, 2022
Operating revenues$1,242,695 $1,492,203 
Operating expenses:
Purchased transportation557,626 693,648 
Salaries, wages and employee benefits254,365 263,194 
Operating leases76,094 71,097 
Depreciation and amortization43,654 34,994 
Insurance and claims40,768 37,257 
Fuel expense16,975 20,951 
Other operating expenses157,000 166,501 
Total operating expenses1,146,482 1,287,642 
Income from operations96,213 204,561 
Other expense:
Interest expense, net(7,595)(3,521)
Total other expense(7,595)(3,521)
Income before income taxes88,618 201,040 
Income tax expense23,011 50,791 
Net income and comprehensive income $65,607 $150,249 
Net income per share
Basic$2.51 $5.56 
Diluted$2.50 $5.53 
Dividends per share$0.72 $0.72 


The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited and in thousands)
 Nine Months Ended
 September 30, 2023September 30, 2022
 
Operating activities:
Net income from operations$65,607 $150,249 
Adjustments to reconcile net income from operations to net cash provided by operating activities
Depreciation and amortization43,654 34,994 
Change in fair value of earn-out liability— (294)
Share-based compensation expense9,352 8,743 
Provision for revenue adjustments8,311 7,302 
Deferred income tax expense2,199 1,962 
Other964 417 
Changes in operating assets and liabilities, net of effects from the purchase of acquired businesses:
Accounts receivable18,874 (43,172)
Other receivables— 8,097 
Other current and noncurrent assets4,207 6,743 
Accounts payable and accrued expenses6,263 21,773 
Net cash provided by operating activities159,431 196,814 
Investing activities:
Proceeds from sale of property and equipment3,275 1,423 
Purchases of property and equipment(23,418)(25,401)
Purchase of a business, net of cash acquired(56,703)(40,433)
Net cash used in investing activities(76,846)(64,411)
Financing activities:
Repayments of finance lease obligations(6,936)(4,209)
Proceeds from credit facility45,000 — 
Payments on credit facility(31,125)(48,625)
Payment of earn-out liability— (91)
Proceeds from issuance of common stock upon stock option exercises— 206 
Payments of dividends to shareholders(18,798)(19,461)
Repurchases and retirement of common stock(93,811)(47,774)
Proceeds from common stock issued under employee stock purchase plan421 374 
Payment of minimum tax withholdings on share-based awards(4,315)(3,293)
Net cash used in financing activities(109,564)(122,873)
Net (decrease) increase in cash and cash equivalents(26,979)9,530 
Cash and cash equivalents at beginning of period 45,822 37,316 
Cash and cash equivalents at end of period$18,843 $46,846 
Non-Cash Transactions:
Equipment acquired under finance leases$18,394 $7,582 

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


Forward Air Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited and in thousands)
 Common StockAdditional Paid-in
Capital		Retained Earnings
Total Shareholders’ Equity
 SharesAmount
Balance at December 31, 202226,462 $265 $270,855 $436,124 $707,244 
Net income— — — 36,368 36,368 
Share-based compensation expense— — 3,149 — 3,149 
Payment of dividends to shareholders— — 4 (6,349)(6,345)
Payment of minimum tax withholdings on share-based awards(40)— — (4,292)(4,292)
Repurchases and retirement of common stock(474)(5)— (50,486)(50,491)
Issuance of share-based awards105 1 (1)— — 
Balance at March 31, 202326,053 $261 $274,007 $411,365 $685,633 
Net income— — — 19,951 19,951 
Common stock issued under employee stock purchase plan4 — 421 — 421 
Share-based compensation expense— — 3,160 — 3,160 
Payment of dividends to shareholders— — 5 (6,260)(6,255)
Repurchases and retirement of common stock(285)(3)— (29,298)(29,301)
Issuance of share-based awards14 — — — — 
Balance at June 30, 202325,786 $258 $277,593 $395,758 $673,609 
Net income— — — 9,288 9,288 
Share-based compensation expense— — 3,043 — 3,043 
Payment of dividends to shareholders— — 4 (6,202)(6,198)
Payment of minimum tax withholdings on share-based awards— — — (23)(23)
Repurchases and retirement of common stock(124)(1)— (14,018)(14,019)
Balance at September 30, 202325,662 $257 $280,640 $384,803 $665,700 






7
Forward Air Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited and in thousands)
 Common StockAdditional Paid-in
Capital		Retained Earnings
Total Shareholders’ Equity
 SharesAmount
Balance at December 31, 202126,969 $270 $258,474 $334,910 $593,654 
Net income— — — 42,686 42,686 
Stock options exercised3 — 206 — 206 
Share-based compensation expense— — 2,761 — 2,761 
Payment of dividends to shareholders— — 4 (6,506)(6,502)
Payment of minimum tax withholdings on share-based awards(30)— — (3,254)(3,254)
Repurchases and retirement of common stock(176)(2)— (17,778)(17,780)
Issuance of share-based awards96 1 (1)— — 
Balance at March 31, 202226,862 $269 $261,444 $350,058 $611,771 
Net income— — — 55,430 55,430 
Common stock issued under employee stock purchase plan5 — 374 — 374 
Share-based compensation expense— — 3,306 — 3,306 
Payment of dividends to shareholders— — 5 (6,497)(6,492)
Payment of minimum tax withholdings on share-based awards(1)— — (39)(39)
Issuance of share-based awards14 — — — — 
Balance at June 30, 202226,880 $269 $265,129 $398,952 $664,350 
Net income— — — 52,133 52,133 
Share-based compensation expense— — 2,676 — 2,676 
Payment of dividends to shareholders— — 4 (6,471)(6,467)
Repurchases and retirement of common stock(290)(3)— (29,991)(29,994)
Balance at September 30, 202226,590 $266 $267,809 $414,623 $682,698 

The accompanying notes are an integral part of the condensed consolidated financial statements.
8
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

1.    Description of Business and Basis of Presentation

Basis of Presentation and Principles of Consolidation

Forward Air Corporation and its subsidiaries (“Forward Air” or the “Company”) is a leading asset-light freight and logistics company. The Company has two reportable segments: Expedited Freight and Intermodal. The Company conducts business in the United States, Canada, and Mexico.

The Expedited Freight segment provides expedited regional, inter-regional and national less-than-truckload (“LTL”), truckload and final mile services. Expedited Freight also offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling services.

The Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station (“CFS”) warehouse and handling services.

The Company’s condensed consolidated financial statements include Forward Air Corporation and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations, and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Results for interim periods are not necessarily indicative of the results for the year.

2.     Revenue Recognition

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

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

9
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
Revenue is classified based on the line of business as the Company believes that best depicts the nature, timing and amount of revenue and cash flows. For all lines of business, the Company records revenue on a gross basis as it is the principal in the transaction as the Company has discretion to determine the amount of consideration. Additionally, the Company has the discretion to select drivers and other vendors for the services provided to customers. These factors, discretion in the amount of consideration and the selection of drivers and other vendors, support revenue recognized on a gross basis.

3.    Acquisitions

Expedited Freight Acquisitions

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

On August 10, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Omni Newco LLC (“Omni”) and certain other parties. 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. The Merger Agreement provides that the Company, through a series of transactions involving the Company’s direct and indirect subsidiaries (collectively with the other transactions contemplated by the Merger Agreement and the other Transaction Agreements referred to therein, the “Transactions”), will acquire Omni for a combination of (a) $150 million in cash and (b) (i) common equity consideration representing 5,135,008 shares of the Company’s outstanding common stock on an as-converted and as-exchanged basis (the “Common Equity Consideration”) and (ii) non-voting, convertible perpetual preferred equity consideration representing, if the Conversion Approval (as defined below) is obtained, an additional 10,615,418 shares of the Company’s common stock on an as-converted and as-exchanged basis (the “Convertible Preferred Equity Consideration”). The Common Equity Consideration will represent, as of the closing of the Transactions (the “Closing”) and before any Conversion Approval, 16.5% of the Company’s common stock, on a fully diluted, as-exchanged basis. If the Conversion Approval is obtained, the Common Equity Consideration and the Convertible Preferred Equity Consideration together will represent as of Closing 37.7% of the Company’s common stock on a fully diluted, as-converted and as-exchanged basis.

Prior to the consummation of the Transactions, the Company will complete a restructuring, pursuant to which, among other things, the Company will contribute all of its operating assets to Clue Opco LLC, a newly formed subsidiary of the Company (“Opco”). After giving effect to the consummation of the Transactions, Opco will be structured as an umbrella partnership C corporation through which the existing direct and certain indirect equityholders of Omni (“Omni Holders”) will at Closing (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”). Following the Closing, the Company will operate its business through Opco, which will indirectly hold all of the assets and operations of the Company and Omni. Opco will be governed by an amended and restated limited liability company agreement of Opco (“Opco LLCA”) to be entered into at Closing.

10
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
The portion of the transaction consideration payable to Omni Holders that is Common Equity Consideration will consist of (a) shares of the Company’s common stock and (b) Opco Class B Units and corresponding Series B Preferred Units that will be 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 payable to the Omni Holders that is Convertible Preferred Equity Consideration will consist 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 will be 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 approval of its shareholders to, among other things, convert the Series C Preferred Units to the Company’s common stock in accordance with the listing rules of NASDAQ (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.

The Company, Opco, Omni Holders and certain other parties will enter 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 will be 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.

The consummation of the Transactions is subject to customary closing conditions, including the expiration or termination of any waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and there not having occurred with respect to Omni’s business or the Company’s business a material adverse effect, subject to certain customary exceptions. All approvals required from the Omni Holders have been obtained. Neither the Conversion Approval nor the financing are conditions to Closing. On September 28, 2023, the waiting period expired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the Transactions.

Series B Preferred Stock

Pursuant to Articles of Amendment to the Restated Charter of the Company to be filed with the Secretary of State of the State of Tennessee at Closing (the “Charter Amendment”), the Company will establish 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 Closing, certain Omni Holders will receive 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.

11
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
Series C Preferred Stock

Pursuant to the Charter Amendment, the Company will also establish 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 will receive 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 will be 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 will accrue on each anniversary of issuance a cumulative annual dividend (without any interim accrual) equal to the product of (a) a rate to be fixed at Closing (which will equal the rate per annum equal to a spread of 3.50% above the yield payable on the most junior tranche of debt issued in connection with the Transactions, rounded to the nearest 0.25%) 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.

Commitment Letter

In connection with entry into the Merger Agreement, the Company also entered into a commitment letter (the “Commitment Letter”), with Morgan Stanley Senior Funding, Inc., Citigroup Global Markets Inc., Goldman Sachs Bank USA and JPMorgan Chase Bank, N.A. (collectively, the “Commitment Parties”), pursuant to which the Commitment Parties committed to provide to Opco, subject to the terms and conditions of the Commitment Letter, (i) up to $1,850 million of indebtedness in the form of a senior secured bridge loan facility and a senior secured first lien term loan “B” facility and (ii) a $400 million senior secured revolving credit facility (collectively, the “Facilities”). The proceeds of the Facilities will be used to (a) finance a portion of the cash consideration for the Transactions and other amounts payable by the Company and its subsidiaries under the Merger Agreement, (b) refinance certain existing indebtedness of the Company and Omni and (c) in the case of the revolving credit facility described above, finance working capital and general corporate purposes of Opco.

Senior Secured Notes

On September 20, 2023, the Company announced that, in connection with the Merger Agreement, GN Bondco, LLC, a wholly owned subsidiary of Omni, (the “Escrow Issuer”) commenced 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 of 1933, as amended (the “Securities Act”) (the “Notes Offering”). The Notes and the related future guarantees have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws. The Notes will 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 will mature on October 15, 2031.

On October 2, 2023, the Escrow Issuer closed its Notes Offering and the Notes were issued pursuant to an indenture (the “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. In addition, the Company and the Escrow Issuer entered into an escrow agreement (the “Escrow Agreement”) pursuant to which the initial purchasers of the Notes deposited the gross proceeds of the sale of the Notes into an escrow account and the Company deposited additional funds required to be deposited therein pursuant to the terms of the Escrow Agreement. On a monthly basis starting in December 2023, the Company is required to deposit or cause to be deposited additional amounts into the escrow account (unless an escrow release has occurred). In connection with the Merger Agreement, the Escrow Issuer will be merged with and into Opco, with Opco surviving the merger as a wholly owned subsidiary of the Company (the “Escrow Merger”). Upon consummation of the Escrow Merger, Opco would assume the obligations of the Escrow Issuer under the Notes and the Indenture and become the “Issuer” thereunder of executing a supplemental indenture to the Indenture.

    If the Merger is not consummated on or prior to June 30, 2024 (the “Escrow Outside Date”), or if, prior to such date, (i) the Company notifies the escrow agent that the Merger Agreement has been terminated in accordance with its terms or (ii) the Company issues a press release indicating that the Merger will not be consummated on or prior to the Escrow Outside Date (or at all), then, in each case, the Escrow Issuer will be required to redeem all of the notes at a special mandatory redemption price equal to the initial issue price of the Notes, plus accrued and unpaid interest to, but excluding, the special mandatory redemption date.
12
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

New Senior Secured Term Loan Facility

On September 22, 2023, the Company priced and allocated a $1,125,000 term loan “B” facility (the “New Term Loan Facility”) to a group of prospective lenders in connection with the financing of the Merger. Loans under the New Term Loan Facility bear interest at a rate equal to, at the Company’s option, the Secured Overnight Financing Rate (“SOFR”) plus 4.50% or the alternate base rate plus 3.50%, subject to an interest rate floor of 0.75% and 1.75%, respectively, and to be issued at an issue price of 96.0%.

The Company elected to include a ticking fee construct to the New Term Loan Facility such that beginning on October 23, 2023, a fee, calculated as 50% of the interest rate margin or 2.25%, is earned by the prospective lender through November 21, 2023. On November 22, 2023, the fee is increased to 4.50% plus SOFR, until the New Term Loan Facility is closed into escrow or the Merger is not consummated.

Due Diligence and Transaction Costs

For the three and nine months ended September 30, 2023, the Company recorded $22,371 and $27,871, respectively, of due diligence and transactions costs incurred in connection with the acquisition of Omni. The due diligence and transaction costs were recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income.

Intermodal Acquisitions

In May 2022, the Company acquired certain assets and liabilities of Edgmon Trucking, LLC (“Edgmon”) for $40,993 and a potential earn-out of up to $5,000, based on the achievement of certain profit contribution milestones over a nineteen month period, beginning May 31, 2022. The estimated fair value of the earn-out liability on the date of acquisition was immaterial. The fair value was based on the estimated certain profit contribution during the nineteen month period and was calculated using the option pricing method. Edgmon, headquartered in Kent, Washington, operates a terminal in Kent and a yard in Seattle, servicing both the Port of Seattle and the Port of Tacoma. The acquisition of Edgmon marks the Company’s first Intermodal location on the West Coast, a key area of expansion in the Intermodal strategic growth plan. The acquisition was funded using cash flows from operations. The results of Edgmon have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Intermodal reportable segment.


13
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
Fair Value of Assets Acquired and Liabilities Assumed

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

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

The estimated useful life of acquired intangible assets as of the acquisition date are summarized in the following table:
Estimated Useful Lives
EdgmonLand Air
Customer relationships9 years12 years
Non-compete agreements5 years5 years
    


14
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

4.    Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the nine months ended September 30, 2023 are summarized as follows:
Expedited FreightIntermodalConsolidated
Balance as of December 31, 2022$169,288 $136,896 $306,184 
Acquisition50,443 136 50,579 
Balance as of September 30, 2023$219,731 $137,032 $356,763 

The Company’s accumulated goodwill impairment is $25,686 related to impairment charges the Company recorded during 2016 pertaining to its Truckload Services reporting unit. The Truckload Services reporting unit operates within the Expedited Freight reportable segment. As of September 30, 2023, approximately $277,619 of goodwill is deductible for tax purposes.

Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of June 30 each year. There have been no indicators of impairment during the three months ended September 30, 2023.

Other Intangible Assets

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

Gross Carrying Amount
Customer Relationships1
Non-Compete AgreementsTrade NamesTotal
Balance as of December 31, 2022$267,870 $8,756 $1,500 $278,126 
Acquisition4,513 873 — 5,386 
Balance as of September 30, 2023$272,383 $9,629 $1,500 $283,512 

Accumulated Amortization
Customer Relationships1
Non-Compete AgreementsTrade NamesTotal
Balance as of December 31, 2022$114,380 $7,445 $1,500 $123,325 
Amortization expense12,980 497 — 13,477 
Balance as of September 30, 2023$127,360 $7,942 $1,500 $136,802 

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



15
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
5.    Stock Incentive Plans

Stock Incentive Plan

The Company recorded share-based compensation expense as follows for the three and nine months ended September 30, 2023 and 2022:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Share-based compensation expense$2,736 $2,355 $8,349 $7,661 

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 September 30, 2023, approximately 568 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 nine months ended September 30, 2023 were as follows:

Stock OptionsWeighted-Average Exercise Price
Outstanding as of January 1376 $66.13 
Granted55 115.42 
Exercised— — 
Forfeited(61)44.97 
Outstanding as of September 30370 $76.91 

As of September 30, 2023, the total share-based compensation expense related to unvested stock options not yet recognized was $2,554, and the weighted-average period over which it is expected to be recognized is approximately two years.

16
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
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.

Restricted share transactions during the nine months ended September 30, 2023 were as follows:
Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of January 1151 $87.82 
Granted78 114.92 
Vested(75)81.11 
Forfeited(9)104.39 
Outstanding as of September 30145 $104.82 

As of September 30, 2023, the total share-based compensation expense related to restricted shares not yet recognized was $10,624, 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 nine months ended September 30, 2023 were as follows assuming target levels of performance:
Performance AwardsWeighted-Average Grant Date Fair Value
Outstanding as of January 170 $87.74 
Granted18 120.27 
Additional shares awarded based on performance4 68.75 
Earned(31)69.10 
Forfeited or unearned— — 
Outstanding as of September 3061 $105.95 

As of September 30, 2023, the total share-based compensation expense related to unearned performance awards not yet recognized, assuming the Company’s current projected assessment of the level of performance that will be achieved, was $3,089, and the weighted-average period over which it is expected to be recognized is approximately two years.

17
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
Employee Stock Purchase Plan

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue up to a remaining 310 shares of common stock to employees. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last day of each six-month purchase period. Common stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions.

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

Nine Months Ended
September 30, 2023September 30, 2022
Shares purchased by participants under the ESPP4 5 
Average purchase price$94.23 $82.76 
Weighted-average fair value of each purchase right under the ESPP granted¹$10.47 $9.20 
Share-based compensation expense for ESPP$42 $42 
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period.

Director Restricted Shares

Under the Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”), approved in May 2007 and further amended in February 2013 and January 2016, up to 360 of common shares may be issued. As of September 30, 2023, approximately 47 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 nine months ended September 30, 2023 were as follows:
Director Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of January 115 $93.70 
Granted15 96.10 
Vested(15)93.70 
Forfeited(1)96.10 
Outstanding as of September 3014 $96.10 

For the three and nine months ended September 30, 2023, the Company recorded $307 and $1,003, respectively, of share-based compensation expense associated with these grants. For the three and nine months ended September 30, 2022, the Company recorded $321 and $1,040, respectively, of share-based compensation expense associated with these grants. As of September 30, 2023, the total share-based compensation expense related to the restricted shares not yet recognized was $790, and the weighted-average period over which it is expected to be recognized is approximately less than one year.
18
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023


6.    Indebtedness

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

September 30, 2023December 31, 2022
Credit facility, expires 2026$122,375 $108,500 
Debt issuance costs(330)(418)
122,045 108,082 
Less: Current portion of long-term debt(3,188)(1,494)
Total long-term debt, less current portion$118,857 $106,588 


In September 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a maximum aggregate principal amount of $150,000, with a sublimit of $30,000 for letters of credit and a sublimit of $30,000 for swing line loans. The maturity date of the Facility was September 29, 2022. In April 2020, the Company entered into the first amendment to the Facility, which increased the maximum aggregate principal amount to $225,000. The Facility could have been increased by up to $25,000 to a maximum aggregate principal amount of $250,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. In July 2021, the Company entered into the second amendment to the Facility, which extended the maturity date to July 20, 2026 and changed the interest rate options available under the Facility. In December 2021, the Company entered into the third amendment to the Facility, which increased the amount available for borrowing under the Facility to $450,000, consisting of a $300,000 revolving line of credit and a term loan of $150,000. In connection with the third amendment, the Company borrowed $150,000 under the term loan and simultaneously repaid $150,000 on the revolving line of credit from the borrowings received. Under the third amendment, the Facility may be increased by up to $75,000 to a maximum aggregate principal amount of $525,000 pursuant to the terms of the amended credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a combination thereof, and are contingent upon there being no events of default under the Facility. As of September 30, 2023 and December 31, 2022, the Company had $265,166 and $279,966, respectively, of available borrowing capacity under the Facility.

The Facility contains covenants that, among other things, restrict the ability of the Company, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the credit agreement. The Company also has to fulfill financial covenants with respect to a leverage ratio and an interest coverage ratio. As of September 30, 2023, the Company was in compliance with the aforementioned covenants.

19
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

Under the amended Facility, interest accrues on the amounts outstanding under the Facility at the Company’s option, at either (1) Bloomberg Short-Term Bank Yield Index rate (the “BSBY Rate”), which cannot be less than zero, plus a margin ranging from 1.25% to 1.75% based on the Company’s leverage ratio, or (2) the base rate, which cannot be less than 2.00%. The base rate is the highest of (i) the federal funds rate, which cannot be less than zero, plus 0.50%, (ii) the administrative agent’s prime rate and (iii) the BSBY Rate, which cannot be less than zero, plus 1.00%, plus a margin ranging from 0.00% to 0.50% based on the Company’s leverage ratio. Interest is payable in arrears for each loan that is based on the BSBY rate on the last day of the interest period applicable to each loan, and interest is payable in arrears on loans not based on the BSBY rate on the last day of each quarter. The weighted average interest rate on the borrowings under the credit facility was 6.70% and 3.33% as of September 30, 2023, and 2022, respectively.

Letters of Credit

The Company has an arrangement under the Facility to issue letters of credit, which guarantee the Company’s obligations for potential claims exposure for insurance coverage. As of September 30, 2023 and December 31, 2022, outstanding letters of credit totaled $19,834 and $20,034, respectively.

20
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

7.    Net Income Per Share

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during each period. Restricted shares have non-forfeitable rights to dividends and as a result, are considered participating securities for purposes of computing net income per common share pursuant to the two-class method. Diluted net income per common share assumes the exercise of outstanding stock options and the vesting of performance share awards using the treasury stock method when the effects of such assumptions are dilutive.

A reconciliation of net income attributable to Forward Air and weighted-average common shares outstanding for purposes of calculating basic and diluted net income per share during the three and nine months ended September 30, 2023 and 2022 is as follows:
 Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Numerator:  
Net income attributable to Forward Air$9,288 $52,133 $65,607 $150,249 
Income allocated to participating securities(57)(325)(357)(838)
Numerator for basic and diluted net income per share$9,231 $51,808 $65,250 $149,411 
Denominator:  
Denominator for basic net income per share - weighted-average number of common shares outstanding25,697 26,769 25,995 26,864 
Dilutive stock options and performance share awards74 133 101 135 
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding25,771 26,902 26,096 26,999 
Net income per share:
Basic$0.36 $1.94 $2.51 $5.56 
Diluted$0.36 $1.93 $2.50 $5.53 

The number of shares that were not included in the calculation of net income per diluted share because to do so would have been anti-dilutive for the three and nine months ended September 30, 2023 and 2022 are as follows:
Three Months EndedNine Months Ended
September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Anti-dilutive stock options112 57 105 49 
Anti-dilutive performance shares18 13 16 11 
Anti-dilutive restricted shares and deferred stock units72 — 61 — 
Total anti-dilutive shares202 70 182 60 

21
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

8.    Income Taxes

For the nine months ended September 30, 2023 and 2022, the Company recorded income tax expense of $23,011 and $50,791, respectively. The effective tax rate of 26.0% for the nine months ended September 30, 2023 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards. The effective tax rate of 25.3% for the nine months ended September 30, 2022 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards.

The Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both September 30, 2023 and December 31, 2022, the Company had $198 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. As of both September 30, 2023 and December 31, 2022, the Company had accrued interest and penalties related to unrecognized tax benefits of $85. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2015.

The sale of the Pool Distribution business in February 2021 resulted in a capital loss in the amount of $4,253, which expires in 2026. The Company concluded that it was more likely than not that the capital loss carryforward will not be realized and therefore, established a valuation allowance of $4,253 to reserve against its capital loss carryforward. The Company also maintains a valuation allowance to reserve against its state net operating loss carryforwards of $395. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies. In making this assessment, all available evidence was considered including economic climate, as well as reasonable tax planning strategies. The Company believes it is more likely than not that it will realize its remaining net deferred tax assets, net of the valuation allowance, in future years.


9.    Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, and accounts payable are valued at their carrying amounts in the Company’s Condensed Consolidated Balance Sheets, due to the immediate or short-term maturity of these financial instruments.

The carrying amount of long-term debt under the Company’s credit facility approximates fair value based on the borrowing rates currently available to the Company for a loan with similar terms and average maturity.

As of September 30, 2023, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $34,140, compared to its carrying value of $35,252. As of December 31, 2022, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $23,210, compared to its carrying value of $23,794.
22
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023

10.    Shareholders’ Equity

Cash Dividends

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

On October 24, 2023, the Board declared a quarterly cash dividend of $0.24 per common share that will be paid in the fourth quarter of 2023.

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 nine months ended September 30, 2023, the Company repurchased through open market transactions 883 shares of common stock for $93,811, or an average of $106.21 per share, and during the nine months ended September 30, 2022, the Company repurchased through open market transactions 466 shares of common stock for $47,774, or an average of $102.44 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 September 30, 2023, the remaining shares permitted to be repurchased under the 2019 Repurchase Plan were approximately 1,349 shares.


11.    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 seeks an injunction against the consummation of the transaction until a shareholder vote was held. Based on the allegations contained in the Shareholder Complaint, the court issued an ex parte temporary restraining order (the “TRO”) enjoining the transactions contemplated by the Merger Agreement. On October 4, 2023, the shareholder plaintiffs filed an amended complaint setting forth additional bases for their contention that the transactions set forth in the Merger Agreement necessitated a shareholder vote under Tennessee law. On October 4, 2023, the shareholder plaintiffs further filed a motion for a temporary injunction enjoining the closing of the transaction until the entry of a final judgment as to the requirement for a shareholder vote. On October 11, 2023, the court held a hearing on the plaintiffs’ motion for a temporary injunction, at the conclusion of which it took the matter under advisement and entered an order extending the TRO until further order of the court. On October 25, 2023, the court held a telephonic conference in which it ordered the dissolution of the TRO. The court did not grant the shareholder plaintiffs’ request for a temporary injunction. On October 26, 2023, the shareholder plaintiffs filed an emergency motion to reinstate the TRO and for leave to take an interlocutory appeal. On October 31, 2023, the court held an emergency hearing on the shareholder plaintiffs’ request to reinstate the TRO and to take an interlocutory appeal of the court’s ruling. During the hearing, the shareholder plaintiffs withdrew their request to reinstate the TRO. The court took the request for leave to take an interlocutory appeal under advisement.

23
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
On October 31, 2023, Omni filed a complaint (the “Omni Complaint”) against the Company and certain of its direct and indirect subsidiaries in the Court of Chancery in the State of Delaware. The Omni Complaint alleges, among other things, that the Company is in breach of its obligation to close the transactions contemplated by the Merger Agreement and seeks specific performance to compel the Company to close and related declaratory relief. the Company has not yet formally responded to the Omni Complaint, but the Company believes that Omni has not complied with certain of its obligations under Sections 7.03 and 7.14 of the Merger Agreement. Consequently, the Company believes the closing condition contained in Section 8.02(b) of the Merger Agreement will not be satisfied at the anticipated closing of the transactions under the Merger Agreement, and the Company will not be obligated to close. As a result, the Company is considering its rights and obligations under the Merger Agreement. the Company intends to vigorously defend its rights in this matter, but there can be no assurance that Omni will not prevail in its claims or that the court will not compel the Company to close the transactions contemplated by the Merger Agreement.

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.
24
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
For vehicle liability, the Company retains a portion of the risk. Below is a summary of the Company’s risk retention on vehicle liability insurance coverage maintained by the Company up to $10,000 (in thousands):

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

Also, from time to time, when brokering freight, the Company may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and the Company maintains third-party liability insurance coverage with a $100 deductible per occurrence for most of its brokered services. The Company maintains workers’ compensation insurance with a self-insured retention of $500 per occurrence.

Insurance coverage in excess of the self-insured retention limit is an important part of the Company’s risk management process. The Company accrues for the costs of the uninsured portion of pending claims within the self-insured retention based on the nature and severity of individual claims and historical claims development trends. The Company believes the recorded reserves are sufficient for all incurred claims up to the self-insured retention limits, including an estimate for claims incurred but not reported. However, estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult, and the Company may fail to establish sufficient insurance reserves and adequately estimate for future insurance claims. Since the ultimate resolution of outstanding claims as well as claims incurred but not reported is uncertain, it is possible that the reserves recorded for these losses could change materially in the near term. Although, an estimate cannot be made of the range of additional loss that is at least reasonably possible.

12.    Segment Reporting

The Company has two reportable segments: Expedited Freight and Intermodal. The Company evaluates segment performance based on income from operations. Segment results include intersegment revenues and shared costs.  Costs related to the corporate headquarters, shared services and shared assets, such as trailers, are allocated to each segment based on usage. Shared assets are not allocated to each segment, but rather the shared assets, such as trailers, are allocated to the Expedited Freight segment. Corporate includes revenues and expenses as well as assets that are not attributable to any of the Company’s reportable segments.

The accounting policies applied to each segment are the same as those described in the Summary of Significant Accounting Policies as disclosed in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2022, except for certain self-insurance loss reserves related to vehicle liability and workers’ compensation. Each segment is allocated an insurance premium and deductible that corresponds to the self-insured retention limit for that particular segment. Any self-insurance loss exposure beyond the deductible allocated to each segment is recorded in Corporate.
25
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
Segment results from operations for the three and nine months ended September 30, 2023 and 2022 are as follows:
 Three Months Ended September 30, 2023
 Expedited FreightIntermodalCorporateEliminationsConsolidated
External revenues$351,312 $62,135 $— $— $413,447 
Intersegment revenues34 48 — (82)— 
Depreciation8,372 2,626 — — 10,998 
Amortization1,947 2,561 — — 4,508 
Income (loss) from operations36,351 4,744 (25,602)— 15,493 
Purchases of property and equipment5,822 21 — — 5,843 
 Three Months Ended September 30, 2022
 Expedited FreightIntermodalCorporateEliminationsConsolidated
External revenues$395,607 $114,416 $— $— $510,023 
Intersegment revenues28 5 — (33)— 
Depreciation6,331 1,782 — — 8,113 
Amortization1,809 2,347 — — 4,156 
Income (loss) from operations56,304 16,610 (1,249)— 71,665 
Purchases of property and equipment6,434 294 — — 6,728 
26
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited and in thousands, except per share data)
September 30, 2023
 Nine Months Ended September 30, 2023
 Expedited FreightIntermodalCorporateEliminationsConsolidated
External revenues$1,028,173 $214,522 $— $— $1,242,695 
Intersegment revenues103 81 — (184)— 
Depreciation23,121 7,056 — — 30,177 
Amortization5,794 7,683 — — 13,477 
Income (loss) from operations100,298 20,259 (24,344)— 96,213 
Purchases of property and equipment22,834 584 — — 23,418 
 Nine Months Ended September 30, 2022
 Expedited FreightIntermodalCorporateEliminationsConsolidated
External revenues$1,180,947 $311,256 $— $— $1,492,203 
Intersegment revenues136 16 — (152)— 
Depreciation18,010 4,766 101 — 22,877 
Amortization5,428 6,689 — — 12,117 
Income (loss) from operations167,091 43,005 (5,535)— 204,561 
Purchases of property and equipment24,155 1,246 — — 25,401 
Total Assets
As of September 30, 2023$811,940 $277,629 $101,082 $(70)$1,190,581 
As of December 31, 2022683,386 322,001 202,756 (67)1,208,076 

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

 Three Months EndedNine Months Ended
 September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Expedited Freight revenues:  
Network$216,977 $240,482 $628,670 $726,054 
Truckload38,800 55,607 120,976 171,659 
Final Mile72,471 76,822 210,388 215,608 
Other23,098 22,724 68,242 67,762 
Total$351,346 $395,635 $1,028,276 $1,181,083 


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

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

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

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

Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and Container Freight Station warehouse and handling services, and in select locations, linehaul and LTL services. We plan to grow our Intermodal geographic footprint through acquisitions as well as greenfield start-ups where no suitable acquisition is available.

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

We monitor and analyze a number of key operating statistics in order to manage our business and evaluate our financial and operating performance. These key operating statistics are defined below and are referred to throughout the discussion of the financial results of our Expedited Freight and Intermodal reportable segments. Our key operating statistics should not be interpreted as better measurements of our results than income from operations as determined under 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, pickup and delivery (“P&D”) stops per hour, P&D shipments per hour and door pounds handled per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. Revenue per hundredweight is also a commonly-used indicator for general pricing trends in the LTL industry and can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. Therefore, changes in revenue per hundredweight may not necessarily indicate actual changes in underlying base rates. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of the petroleum-based products used in our operations and is indexed to diesel fuel prices published by the U.S. Department of Energy. The impact of fuel on our results of operations depends on the relationship between the applicable surcharge, the fuel efficiency of our Company drivers, and the load factor achieved by our operation. Fluctuations in fuel prices in either direction could have a positive or negative impact on our margins, particularly in our LTL business where the weight of a shipment subject to the fuel surcharge on a given trailer can vary materially. We believe our yield management process focused on account level profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to grow profitably.

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

Tonnage - Total weight of shipments in pounds. The level of freight tonnage is affected by economic cycles and conditions, customers’ business cycles, changes in customers’ business practices and capacity in the truckload market.
28


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

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

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

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

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

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

Trends and Developments

Expedited Freight Acquisitions

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

On August 10, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Omni Newco LLC (“Omni”) and certain other parties. 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. The Merger Agreement provides that we, through a series of transactions involving the our direct and indirect subsidiaries (collectively with the other transactions contemplated by the Merger Agreement and the other Transaction Agreements referred to therein, the “Transactions”), will acquire Omni for a combination of (a) $150 million in cash and (b) (i) common equity consideration representing 5,135,008 shares of our outstanding common stock on an as-converted and as-exchanged basis (the “Common Equity Consideration”) and (ii) non-voting, convertible perpetual preferred equity consideration representing, if the Conversion Approval (as defined below) is obtained, an additional 10,615,418 shares of our common stock on an as-converted and as-exchanged basis (the “Convertible Preferred Equity Consideration”). The Common Equity Consideration will represent, as of the closing of the Transactions (the “Closing”) and before any Conversion Approval, 16.5% of our common stock, on a fully diluted, as-exchanged basis. If the
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Conversion Approval is obtained, the Common Equity Consideration and the Convertible Preferred Equity Consideration together will represent as of Closing 37.7% of our common stock on a fully diluted, as-converted and as-exchanged basis.

Prior to the consummation of the Transactions, we will complete a restructuring, pursuant to which, among other things, we will contribute all of our operating assets to Clue Opco LLC, a newly formed subsidiary of us (“Opco”). After giving effect to the consummation of the Transactions, Opco will be structured as an umbrella partnership C corporation through which the existing direct and certain indirect equityholders of Omni (“Omni Holders”) will at 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”). Following the Closing, we will operate its business through Opco, which will indirectly hold all of the assets and operations of us and Omni. Opco will be governed by an amended and restated limited liability company agreement of Opco (“Opco LLCA”) to be entered into at Closing.

The portion of the transaction consideration payable to Omni Holders that is Common Equity Consideration will consist of (a) shares of our common stock and (b) Opco Class B Units and corresponding Series B Preferred Units that will be exchangeable at the option of the holders thereof into shares of our common stock pursuant to the Opco LLCA. The portion of the transaction consideration payable to the Omni Holders that is Convertible Preferred Equity Consideration will consist of (a) Series C Preferred Units that will automatically convert into shares of our common stock upon the receipt of the Conversion Approval and (b) Opco Series C-2 Preferred Units that will be economically equivalent to the 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, we have agreed to use its reasonable best efforts to obtain the approval of its shareholders to, among other things, convert the Series C Preferred Units to our common stock in accordance with the listing rules of NASDAQ (the “Conversion Approval”) at the first annual meeting of our shareholders following the Closing. If we do not obtain the Conversion Approval at such annual meeting, then, so long as any Series C Preferred Units remain outstanding, we have 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.

We, Opco, Omni Holders and certain other parties will enter 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 us as a result of the Transactions. Pursuant to the Tax Receivable Agreement, we will be generally obligated to pay certain Omni Holders 83.5% of (a) the total tax benefit that we realize 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 us (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 we realize 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.

The consummation of the Transactions is subject to customary closing conditions, including the expiration or termination of any waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and there not having occurred with respect to Omni’s business or our business a material adverse effect, subject to certain customary exceptions. All approvals required from the Omni Holders have been obtained. Neither the Conversion Approval nor the financing are conditions to Closing. On September 28, 2023, the waiting period expired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the Transactions.
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Fuel

We depend heavily upon the availability of adequate diesel fuel supplies, and recently, fuel availability and prices have fluctuated significantly. Fuel availability and prices can be impacted by factors beyond our control, such as natural or man-made disasters, adverse weather conditions, political events, economic sanctions imposed against oil-producing countries or specific industry participants, disruptions or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, terrorist activities, armed conflict, tariffs, sanctions, other changes to trade agreements and world supply and demand imbalance. Through our fuel surcharge programs, we have been able to mitigate the impact of fluctuations in fuel prices. Our fuel surcharge rates are set weekly based on the national average for fuel prices as published by the U.S. Department of Energy and our fuel surcharge table. In periods of changing fuel prices, our fuel surcharges vary by different degrees and may not fully offset fuel price fluctuations or may result in higher than expected increases in revenue. Fuel shortages, changes in fuel prices, and the potential volatility in fuel surcharge revenue may impact our results of operations and overall profitability. Fuel surcharge revenue as a percentage of operating revenues decreased to 16.9% for the quarter ended September 30, 2023 compared to 17.7% for the quarter ended September 30, 2022 as a result of changes in fuel prices.

Economy

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

Like other providers of freight transportation services, our business has been impacted by the macroeconomic conditions of the past year. Industry freight volumes, as measured by the Cass Freight Index, decreased in the third quarter of 2023 compared to the third quarter of 2022. Transportation rates continue to decline as carrier capacity during the third quarter of 2023 continued to exceed shipper demand in the United States. While recently elevated inventory levels have largely stabilized, shippers continue to closely monitor consumer spending and carefully manage inventory restocking activities. Consecutive quarters of weak consumer demand have nearly eliminated the challenges from port congestion and transportation equipment shortages. Despite the weak demand, new vessel deliveries continue to add capacity to the market, which suggests excess capacity may persist even though steamship lines continue to rationalize services by reducing capacity where possible. The air freight market has also seen an increase in capacity resulting from increased commercial flight activity to support elevated consumer travel. Air freight capacity, however, tighten slightly following the end of the peak summer travel season. For Intermodal, a key driver of volumes are imports into the United States, which have declined over several months due to inflation, customer demand and a shift of spending by consumers from goods to services. For Truckload, the capacity contraction has created a sustained market of depressed spot market truckload rates with minimal signs of improvement. These trends drove a decline in the volume of freight shipped by our customers and placed pressure on rates in an extended freight environment in the third quarter of 2023 and is expected to continue into the fourth quarter of 2023.



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Results from Operations

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

Three Months Ended
September 30, 2023September 30, 2022ChangePercent Change
Operating revenues:
Expedited Freight$351,346 $395,635 $(44,289)(11.2)%
Intermodal62,183 114,421 (52,238)(45.7)
Eliminations and other operations(82)(33)(49)148.5 
Operating revenues413,447 510,023 (96,576)(18.9)
Operating expenses:
Purchased transportation190,766 229,326 (38,560)(16.8)
Salaries, wages, and employee benefits88,159 90,755 (2,596)(2.9)
Operating leases22,662 24,965 (2,303)(9.2)
Depreciation and amortization15,506 12,269 3,237 26.4 
Insurance and claims13,626 12,093 1,533 12.7 
Fuel expense5,917 6,772