FORWARD AIR CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Achievements: Successfully closed Omni transaction in January 2024, built out leadership team, delivered $75 million of integration synergies and aimed to exceed initial target, reduced operating expenses by over $100 million annually through synergies and cost out actions.
• 2025 Priorities: Drive profitable long-term growth by expanding synergistic service offerings, transform IT systems, improve data quality and decision making, stand up global shared services organization, and leverage new Chief Commercial Officer's experience to grow revenue.
• Fourth Quarter Performance: Expedited Freight segment income from operations declined due to volume decrease and prior growth-focused pricing; Intermodal segment had consistent performance; Omni Logistics achieved best quarterly EBITDA since transaction. Implemented corrective pricing actions in fourth quarter, expecting full impact by end of February and yield improvement in second quarter and beyond.

Segment Performance

• Expedited Freight: Revenue decreased $13 million or 4.7% to $266 million, driven by a 5.8% decline in revenue per hundredweight and a 4.3% decrease in tonnage per day.
• Intermodal: Revenue was $60 million, flat compared to the fourth quarter of 2023. An increase in revenue per shipment of 3.2% was offset by a 2.8% decrease in the number of trade shipments.
• Omni Logistics: Revenue increased due to the acquisition. Fourth quarter revenue decreased sequentially by $9 million or 2.7% compared to the third quarter of 2024, but achieved its best quarterly reported EBITDA result since the transaction. Revenue from Omni Logistics in the fourth quarter was $326 million, and it contributed significantly to the overall results, with additional cost reduction actions adding approximately $20 million on an annualized basis.

Guidance

• Exceeded $75 million integration synergy target and on pace to exceed initial target, with network integration expected to be complete by end of first quarter 2025.
• Corrective pricing actions implemented in fourth quarter, expecting full impact by end of February 2025 and yield improvement in second quarter and beyond.
• Plan to rationalize IT systems, move from multiple TMS, ERP, and HRIS systems to unified system during 2025-2026 to reduce redundancies and enhance efficiencies.

Risks

• Tariffs and Trade Disruptions: Difficult to project impact on freight volumes and revenue, but currently not seeing major impact on Forward Air's business as of now.
• Competition: Concerns about peers standing up potential A2A networks, but focus remains on differentiating through technology and best-in-class service.

Q: Touch on tariff and trade disruptions potentially at Omni and preparation for changes.

A: Shawn Stewart stated it's hard to project impact, but Forward Air doesn't see major impact from tariffs on Asian trade as it's a lower-single digit percentage ex-China, and no major impact from Mexico/Canada tariffs as commodities involved aren't in their business network.

Q: Perspective on peers standing up A2A networks and competition.

A: Shawn Stewart said they like competitors as it keeps them sharp, and they focus on differentiating through technology and best-in-class service rather than short-term rate tactics.

Q: Talk on balance sheet, cash flow, and whether business can be cash flow positive this quarter without bond payment.

A: Jamie Pierson said they have about $170 million a year in interest payments, and since it's an asset light business model with low CapEx, they just need to keep executing to be cash flow positive, having demonstrated cash flow positive in third quarter of 2024.

Q: Drivers of Omni business in the quarter and outlook for next year.

A: Jamie Pierson said Omni saw increase in air and ocean volume but offset by softer pricing, and strong warehouse and VAS operations; Shawn Stewart added integration of networks has led to some uptick in solution selling; Jamie Pierson also pointed to Omni's performance improving every quarter and expects volumes to start recovering by end of 2025.