Yahoo Finance Forward Air Corporation (NASDAQ:FWRD) Q1 2024 Earnings Call Transcript
Forward Air Corporation (NASDAQ:FWRD) Q1 2024 Earnings Call Transcript May 9, 2024
Forward Air Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Michael Hance, Chief Legal Officer.
Michael Hance: Good morning, and thank you, operator, and thanks, everyone, for joining the call today. Before we jump in, I just wanted to take a moment to thank our teammates, customers and shareholders, many of whom are on the call today for the incredible support over the last several months as I served as Interim CEO. In particular, I want to acknowledge the employees and independent contractors and drivers who have been and continue to work tirelessly to provide best-in-class service to our customers and make this combination that we're working on the success. I'm humbled by what you do, and I am so grateful for your hard work. Thank you. Last quarter, I told you that my mandate as interim CEO was to provide the appropriate leadership while our teams continue to work through the integration of Forward and Omni.
At the same time, our Board's dedicated search committee was focused on promptly identifying a top-quality CEO to run the Company during the next phase of our growth and development. That work is done, and I personally couldn't be more pleased with the outcome. I'm thrilled to introduce you to Shawn Stewart who began his tenure as CEO of Forward on April 28. The Board and our advisers conducted a thorough search and are confident Shawn is the right leader to drive Forward's future success. He knows this industry inside and out and has a demonstrated track record of successfully delivering growth, operational excellence and profitability. As an 18-year veteran a Forward who cares deeply about the Company's success, I'm personally committed to ensuring Shawn hits the ground running as I return to my role as Chief Legal Officer and Secretary.
And I know all of our teammates share that same commitment. I'll close by reiterating that we recognize these past few months have been bumpy as we navigated turbulence in the freight market and within our company. Our team is confident that is behind us, and we are all united and energized by the opportunities ahead. With that, please allow me to turn it over to Shawn for his remarks before Rebecca runs us through the numbers. Shawn?
Shawn Stewart: Thank you, Michael, and thank you to those on the call who have provided a warm welcome and words of encouragement as I assume my new role a week ago, Monday. I won't go into more details about my background as I'm sure you've all seen the press release. But let me just say that I couldn't be more excited to join forward at this critical juncture. The addition of Omni paves the way for the Company to become a market leader in global supply chain as we leverage the new capabilities while enhancing our best-in-class expedited LTL and others round services. I'm going to pass the call to Rebecca in a moment to provide you with details about our financial results. Given that I've been here less than two weeks, I'm not going to speak too much, except to say that these results are not indicative of what you will see from us the rest of the year.
We are headed up and onward from this day. I also want to share my view about the context of the Company's Q1 performance, which I think is important to keep in mind. Our first quarter results were negatively impacted by two really tough headwinds. First, these results were generated in a weak freight environment. Second, I'm convinced that these results reflect the impact of the distraction by the challenging circumstances leading up to the closing of the Omni transaction. I wasn't here, but you don't have to write a roller coaster to know that people riding the roller coaster probably aren't focused on much else. Since closing, Michael and the team have done a great job pushing forward with integrating two companies and capturing synergies, which you will hear more about later.
But I think it's really unrealistic to think that the ups and downs of the months leading to closing are reflected in our Q1 performance. Thankfully, that distraction is behind us now. As I mentioned, it is premature for me to start talking about Ford's numbers, but today, I want to commit to two things. First, as I said earlier, we are headed up from here. When we are back on this call at the end of the second quarter, I believe we will be talking about different results that show significant improvement. I need a little bit more time before we are ready to give you targets, but I can tell you that in my first days with the team, we are focused on accelerating synergy capture and identifying opportunities to eliminate significant costs from our structure.
We are going to aggressively and urgently address our profitability issues, and I fully expect us to be a category leader in our space with corresponding financial results. Second, we are going to enhance our investor communications to ensure that we are clear, transparent and comprehensive with our data and communication. You should expect to see steady improvement in information flow over the next couple of quarters, providing you with the financial information that you need and want. Starting with our second quarter earnings release, we will provide full year 2024 guidance and information about our path to achievement. Why am I confident about these commitments, because I did my own diligence before accepting the Forward opportunity. And I found a number of things that I like and I'm excited about.
First, this organization is made of great people. During these first two weeks on the job, I've been impressed with the quality and dedication of people I've met throughout the legacy Forward and Omni business. And I've been pleased to find that these businesses share a common DNA of providing excellent customer service. That will not change, and the quality and commitment of our people will serve as a strong foundation for our growth. Second, I can't stress this enough. As a result of this combination, Forward now has an incredible and unique platform for long-term growth and success, and its current areas of underperformance are very addressable. Let's talk about the platform. In the Omni legacy business, we now have a true global supply chain network to add to our core LTL network.
Remember, we run the best-in-class premium service LTL network in the U.S. with an on-time percentage of 98.6% and a cargo claims ratio of 0.04%. We are starting to see the power of the revenue synergies of these assets. Because of our combined capabilities, we were recently awarded a substantial volume of business from a Fortune 500 global technology company. We are finalizing the contract now, and we expect the business to start in June. We have similar opportunities in the advanced stages of our sales pipeline. Also, we continue to gain new business wins from existing customers. As an example, we recently renewed a contract with one of our top 20 legacy Forward customers that will generate an annualized revenue 4x its historical trends. Additionally, in a tough freight environment, our intermodal team added 13 new logos in the first quarter.
All this makes me optimistic about the rest of the year. Another point of strength is our broad and attractive customer base spanning our three distinct commercial channels. Let me pause to say thank you to all of our customers for your business and support. Under my leadership, we plan to drive growth in all three channels, but I want to be clear. We remain committed to our legacy Forward customers, including freight porters, airlines and 3PLs. We are committing to continuing to provide them with our premium LTL services to enable them to grow the business. We have honored that commitment since closing, and we will continue to provide these key customers with that same great service. In my diligence review, I found that Omni has a strong track record with its customers and does a great job of providing them with solutions around the world.
I will name one. Omni provides critical value-added warehouse services for [indiscernible]. We are honored by the trust placed on us by customers like [indiscernible]. In my view, there is much to be excited about at Forward. Those are my initial high-level thoughts, and I naturally will provide more detailed comments on next quarter's call. Right now, addressing the business and financial performance will be the focus of all my energy and time. Rebecca will update you on some progress made so far this year, and I look forward to providing additional updates soon as we make even more headway. Hopefully, the slides we filed along with the press release demonstrate our renewed commitment to providing enhanced disclosure of our performance and integration of Omni.
With that, let me turn it over to Rebecca to run through the quarter and provide an update on the Omni integration. Rebecca?
Rebecca Garbrick: Thanks, Shawn, and good morning, everyone. Let's start by reviewing the fourth quarter results for 2024. I'm not going to read through slide by slide, but will reference certain slides by number when helpful. Before I dive into the numbers, I want to reiterate a point that Shawn made in his remarks. We do not believe that our first quarter results are indicative of what we expect for the remainder of 2024. Those numbers don't tell the full story about the potential earnings power of the combined company. Let me highlight a few of the reasons why, some of which Shawn has already touched on. First, the first quarter is always the worst quarter of the year for business based on historical seasonal trends. Next, these results continue to be impacted by challenging market conditions that persisted throughout the quarter, particularly in the Intermodal, Truckload Brokerage and Omni lines of businesses.
The challenging market conditions led to decreased customer demand for those services, a pattern that we have seen since the second quarter of the prior year. As we continue to execute our revenue growth strategies in the first quarter, we saw positive trends in our less-than-truckload business with weight per shipment growth of 7.4% and shipments per day growth of 1.4% over the same period last year. We have experienced solid retention levels with our legacy Forward customers, which has been positive for revenue growth. During the first quarter, we also saw a 0.7% increase in our revenue per shipment, excluding fuel and a 6.2% decrease in the revenue per hundredweight, excluding fuel, over the prior year period. The decline in the revenue per hundredweight, excluding fuel was driven primarily by the shift in the business mix as we execute on the expansion of our door-to-door solutions.
Finally, our Q1 results reflect minimal synergy impact, and we expect to see a steady increase in the subsequent quarters until the synergies are fully realized by the end of 2025. From a liquidity standpoint, at the end of March, we had a $340 million capacity on our revolver and $172 million of cash on hand. We are taking all actions to improve liquidity, and we do not foresee the need to draw on the revolver. We look forward to sharing more details about our path to deleveraging in the context of our 2024 full year guidance during our second quarter's earnings call. Before we look at the numbers, I want to point out that the Omni results are reflected in our first quarter results from the closing of the acquisition, that would be January 25 through the end of the quarter.
Our first quarter revenue was $542 million, an increase of 52% or $184 million as compared to the first quarter in the prior year. This increase of $184 million over the prior year period was driven by $225 million of revenue generated by our Omni segment and $4 million of incremental revenue generated by our Expedited Freight segment, partially offset by an incremental decline of $32 million from our Intermodal segment. Our adjusted EBITDA was $29 million, a decline of 51% or $30 million as compared to the first quarter in the prior year. This decrease of $30 million was driven by an adjusted EBITDA loss in the Omni segment of $6 million and incremental EBITDA loss of $7 million in our Expedited Freight segment and incremental EBITDA loss of $8 million in our Intermodal segment and incremental EBITDA loss of $9 million in other operations.
For other operations in the first quarter of 2023, we recorded a onetime benefit of $9 million from the substantial reversal of an accrual from an incentive plan established for employees in 2021. A similar benefit was not reported in the first quarter of 2024. We saw adjusted operating income of $13 million, excluding acquisition amortization compared to $47 million in the prior year. Acquisition amortization is the amortization related to the allocation of the purchase price of Omni to intangible assets. We reported adjusted net loss per diluted share on a continuing operations basis, excluding acquisition amortization of $0.64 compared to net income per diluted share on a continuing operation basis of $1.27 in the prior year. Our operating cash flow for the fourth quarter was a negative $52 million compared to a positive $61 million for the prior year period.
Our operating cash flow for the first quarter included the payment of transaction and integration costs of $40 million. We consider the payment of transaction and integration costs to be onetime-only costs that are not expected to reoccur in the second half of the year. We project our liquidity to be at a lower point in the first half of the year as a result of these onetime only costs. Looking ahead to April, our shipments per day increased approximately 4% and our revenue per shipment, excluding fuel, increased 2% over the same period last year in our less-than-truckload line of business. Additionally, on a consolidated basis, our revenue grew sequentially from March to April by 6%, a period that historically has shown contraction versus growth based on seasonality.
The 5.9% general rate increase we announced in December went into effect in February and will enable us to continue to serve our customers with the same precision execution in an environment with rising operating costs. The capture rate was higher than 2022 and the rate increase is comparable with the increase in the operating costs expected for 2024. Now turning to the integration of Omni. On Slide 6, we outlined some key metrics on Forward's business. And on Slide 7, at Omni, which we hope is helpful historical context. But what we're really excited about is what these companies look like together and the opportunity for value creation received emerging from the combination. We are pleased with the progress we are making on integration. As you will see on Slide 10, we have provided updated cost synergy targets.
We now expect to deliver full run rate cost synergies of $73 million by the end of 2025, which is very much in line with the initial call synergy targets provided in August 2023. We have adjusted the initial estimate of $75 million by less than $2 million due to volumes associated with the LTL and [type] synergies. We are pleased to report that we've already delivered synergies of $7.5 million in the first quarter, and we expect to realize $55 million on an annualized basis. We expect to derive the rest of the synergies of $18 million from incremental actions in the area of network optimization, facilities consolidation, SG&A, technology and brokerage. With regards to our capital position, as you will see on Slide 10, as of March 31, the combined entity had more than $512 million of liquidity.
Last quarter, we outlined relevant terms of our existing credit facilities, so I will not go into that detail again here, but I will highlight that we have headroom in our financial covenants as we continue to focus on our integration and realize the cost synergy opportunities. We remain compliant with our bank covenants at the end of the first quarter. In terms of our capital allocation priorities, we are committed to derisking our capital structure, and we are already undertaking several initiatives to deleverage. We intend to return to net leverage of 4.5x by the end of 2025. Key steps include a focus on profitability of the combined entity and the realization of the cost synergies to generate cash from operations as well as an accelerated portfolio review to identify potential divestitures.
We are actively reviewing our portfolio and plan to take swift action to monetize on those assets. With that, I'll now turn the call back to the operator to take comments and questions. Operator?
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