FORWARD AIR CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Acquisition Integration: Acquisition of Omni closed ~9 months ago; domestic networks integration is substantially complete, delivering on savings. Focus on broader transformation to be one company, brand, and solution provider spanning international freight forwarding to domestic expedited LTL ground service.
• New Facility: Opened a new warehouse and freight station in Miami, strategically positioned for Latin America access. Expanded presence in South America with offices in Santiago, Chile and Bogota, Colombia.
• Expedited Freight Issues: Expedited Freight segment results fell short due to pre-acquisition pricing strategy focused on volume over profitability. Addressing the issue by adjusting freight mix and expecting to onboard a new Chief Commercial Officer starting January 2025.

Segment Performance

• Expedited: Revenue increased $6 million or 2% to $285 million from the previous year's comparable quarter of $279 million. The increase was driven by a 4.5% year-over-year increase in weight per shipment, but partially offset by a 3.8% decrease in revenue per hundredweight (including fuel surcharge) and a 2.3% decrease in shipments per day.
• Intermodal: Revenue decreased $5 million or 8% to $57 million from the previous year's comparable quarter of $62 million. The decrease was primarily due to 8.7% fewer shipments as some customers diverted freight ahead of a potential International Longshoremen's Strike on the East Coast.
• Omni: Revenue increased by a full $335 million compared to the previous year's comparable quarter. Sequentially, third quarter revenue at the Omni segment increased $23 million or 7% compared to the second quarter of $312 million. Income from operations for the third quarter was $23 million compared to $12 million a year ago.

Guidance

• Full year 2024 consolidated EBITDA guidance updated from $310 million to $300 million to $310 million.
• Tracking ahead of plan for $75 million annualized savings run rate, expect to reach by end of first quarter 2025.
• No 2025 guidance provided due to macro environment uncertainty.

Risks

• Macro environment uncertainty impacting demand for services.
• Integration complexity continuing into 2025 and possibly 2026.
• Risks associated with forward-looking statements, where actual results may differ materially from projections.

Question and Answer

Q: Potential sale of individual pieces of Omni?

A: Still in the analysis phase; too premature to announce any decisions on selling non-core pieces.

Q: Yield progression in network LTL?

A: Adjusting class-based rate to reflect service quality; expecting ~50/50 impact on Q4 results due to changes in execution with customers.

Q: Fourth quarter EBITDA ramp?

A: Normal seasonality, with October traditionally being the best month, but no Herculean changes expected outside of seasonal trends.

Q: Depreciation and working capital?

A: Depreciation normalized around $37 million; working capital improvement from accounts receivable and accounts payable management, with gains not expected to repeat the third quarter's inflection.

Q: Covenant cushion and Omni seasonality?

A: Net debt to consolidated LTM EBITDA at 5.4 times, within covenant limits; mix of business at Omni spans various logistics services, with no intra-quarter guidance on tonnage provided.