Earnings call transcript: Forward Air Q4 2024 misses EPS forecast

Forward Air Corporation (NASDAQ:FWRD) reported its fourth-quarter 2024 earnings, revealing a significant miss on earnings per share (EPS) forecasts, accompanied by a mixed market reaction. The company’s actual EPS was -$1.23, falling well short of the -$0.12 forecasted, while revenue came in at $632.85 million, slightly below the expected $667.72 million. Despite the earnings miss, Forward Air’s stock experienced a 4.08% increase in aftermarket trading, closing at $26.80. According to InvestingPro data, the company’s financial health score is currently rated as WEAK, with particular concerns about its debt management and profitability metrics.

Key Takeaways

• Forward Air’s Q4 2024 EPS was significantly below expectations.
• Revenue for the quarter saw an 87% year-over-year increase.
• The company’s stock rose by 4.08% in aftermarket trading.
• Forward Air achieved $75 million in integration synergies.
• The freight environment remains challenging, with a slowdown in expedited freight volumes.

Company Performance

Forward Air demonstrated robust year-over-year revenue growth of 87% in Q4 2024, reaching $633 million. The company’s performance was marred by a substantial EPS miss, attributed to ongoing challenges in the freight market, including a decline in expedited freight volumes. InvestingPro analysis reveals a concerning debt-to-equity ratio of 9.24x and negative return on assets of -46.8%, highlighting the importance of the company’s $100 million in annualized savings through integration synergies and operational efficiencies.

Financial Highlights

• Revenue: $633 million, an 87% increase year-over-year.
• Q4 Consolidated EBITDA: $69 million with an 11% margin.
• Cash used from operations in Q4: $31 million.
• Liquidity at the end of Q4: $382 million.

Earnings vs. Forecast

Forward Air’s Q4 2024 EPS of -$1.23 missed the forecast of -$0.12 by a significant margin, marking a substantial deviation from expectations. The revenue of $632.85 million also fell short of the $667.72 million forecast. This earnings miss reflects the ongoing challenges in the freight environment, particularly in the expedited freight segment.

Market Reaction

Despite the earnings miss, Forward Air’s stock rose by 4.08% in aftermarket trading, closing at $26.80. This increase suggests that investors may have responded positively to the company’s strategic initiatives and cost-saving measures. InvestingPro analysis indicates the stock is currently undervalued compared to its Fair Value, though investors should note the stock has declined nearly 31% over the past year. For deeper insights into Forward Air’s valuation and comprehensive analysis, subscribers can access the detailed Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks.

Outlook & Guidance

Looking ahead, Forward Air anticipates improvements in earnings quality in 2025, with expectations of volume and yield enhancements in the second quarter. The company continues to focus on long-term growth and strategic pricing corrections in the expedited freight segment. Forward Air projects revenue growth and profitability improvements as part of its transformation strategy through 2025-2026. According to InvestingPro, two analysts have recently revised their earnings estimates upward for the upcoming period, though the company is not expected to be profitable this year.

Executive Commentary

CEO Sean Stewart remarked, "We started 2024 playing a lot of defense and transitioned to play in more offense by the end of the year," highlighting the company’s strategic shift. CFO Jamie Pearson (LON:PSON) emphasized Forward Air’s competitive edge, stating, "Our network is better than those peers... our level of service is better than those peers."

Risks and Challenges

• Continued slowdown in the freight environment could impact future earnings.
• Expedited freight volume declines may pose ongoing challenges.
• Softness in air and ocean pricing environments could affect revenue.
• Integration and operational efficiencies need to be sustained to achieve projected savings.
• Macroeconomic pressures and trade disruptions remain potential risks.

Q&A

During the earnings call, analysts inquired about the impact of tariff and trade disruptions, to which the company responded with confidence in maintaining customer relationships and addressing unprofitable tariffs. Forward Air also highlighted its focus on improving expedited freight margins through pricing and network optimization.

Full transcript - Forward Air Corporation (FWRD) Q4 2024:

Operator: Welcome to the Forward Air Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants have been I would now like to turn the call over to Tony Carino, Senior Vice President of Treasury and Investor Relations. Please go ahead.

Tony Carino, Senior Vice President of Treasury and Investor Relations, Forward Air: Thank you, operator, and good afternoon, everyone. Welcome to Forward Air’s fourth quarter and year end twenty twenty four earnings conference call. With us this afternoon are Shawn Stewart, Chief Executive Officer and Jamie Pearson, Chief Financial Officer. By now, you should have received a press release announcing Forward Air’s fourth quarter twenty twenty four results, which was also furnished to the SEC on Form eight K. We have also filed a slide presentation outlining fourth quarter twenty twenty four earnings highlights and a business update.

Both the press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air’s website at forwardair.com. Please be aware that certain statements in the company’s earnings release announcement and on this conference call are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes statements which are based on expectations, intentions and projections regarding the company’s future performance, anticipated events or trends and other matters that are not historical facts, including statements regarding our fiscal year 2025. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and slide presentation relating to this earnings call.

Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise, unless required by law. During the call, there may also be a discussion of financial metrics that do not conform to U. S. Generally Accepted Accounting or GAAP.

Management uses non GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Definitions and reconciliations of these non GAAP measures to their most directly comparable GAAP measures are included in today’s press release and slide presentation. I will now turn the call over to Sean.

Sean Stewart, Chief Executive Officer, Forward Air: Good afternoon, everyone, and thanks for joining the call today. I appreciate your interest in Ford (NYSE:F) Air and the transformational journey we are on. As is always the case with turnarounds with this much size, scale and complexity, there are usually bumps along the way and this quarter was no exception. But we remain resolute and excited about our future. Today, there are three main topics that I want to cover.

First, I will review some of the key achievements in 2024. Second, I will share some thoughts on our 2025 priorities and I will close with an overview of the fourth quarter performance. For the full year 2024, we reported consolidated EBITDA of $3.00 $8,000,000 which is near the top of our guidance range of $300,000,000 to $310,000,000 We successfully closed out a very busy and noisy year that began with the closing of the Omni transaction last January, just thirteen months ago. I joined the company three months after the transaction closed and quickly centered our efforts on stabilizing the company, integrating the networks, and I’m pleased with the pace and rigor at which we moved. Over the course of the year, we built out our leadership team that has both the experience and industry know how to not only lead these two legacy companies into the future, but also unite them to get the most out of their individual and combined value props.

Above the team, most importantly, in our first year as a combined company, we put the customer first and focused on providing best in class solutions, leveraging the known capabilities of both Ford Air and Omni’s global footprint. We are building on their individual strengths and leveraging the global freight forwarding capabilities of the legacy Omni entities, while continuing our domestic expedited LTL truckload and intermodal offerings. We remain committed to providing our customers including and especially our legacy Freight Forwarders and 3PL customers with the same award winning service they have relied on for years to grow their businesses. We view ourselves as moving more than just our customer shipments. With an undisputed dedication, we take ownership of their supply chain challenges, solving them with unique solutions that deliver possibilities for growth, innovation and most importantly, a peace of mind.

We delivered on the targeted $75,000,000 of integration synergies and cost savings that were circled out at the onset of the transaction. We are at pace to exceed the initial target and remain on schedule to be at a full run rate of savings and complete the network integration at the end of the first quarter of twenty twenty five. These initiatives reduced our operating expenses, our real estate footprint and employee headcount and serve as a springboard for the transformational phase we are entering. In the second and fourth quarters of twenty twenty four, we took additional steps to reducing operating expenses by incremental approximately $40,000,000 per annum, including reductions in our workforce, direct operating expenses and the use of third party vendors. To date, we have executed on more than $100,000,000 in annualized savings from synergies and cost out actions contributing to a more financially efficient company, while maintaining our high level of customer satisfaction.

During the year, we made several key additions to our leadership team, including Jamie Pearson as Chief Financial Officer Jessica Heron as Supply Chain Solutions and Customer Experience Officer Doug Smith as Chief People Officer and most recently Eric Brandt as Chief Commercial Officer. In addition, Tim Osborne assumed the responsibility for all North America ground operations. With our management team largely complete, I could not be more excited about the talent and industry experience they all bring. As we look ahead, the foundational changes and investments made in 2024 are expected to benefit 2025 and beyond. Our priorities include driving profitable long term growth by expanding synergistic service offerings for our customers, which will in turn lead to a higher and more profitable revenue.

In parallel, operationally, we are officially turning our efforts from completing the integration to a much broader transformation strategy focused on rationalizing our IT systems, improving the quality of our data and decision making. We are also standing up a global shared services organization to assist us in integrating and managing our back office operations. With Eric joining the company in January and leading our worldwide sales team, we are excited to grow revenue across our newly aligned global business. He is a seasoned leader with a deep understanding of global logistics and supply chain management. Given his tenure and experience in the space, he has a firsthand knowledge and relationship with our existing customer base and has already set the path for our future growth.

Regarding transformation, it is being led by our transformation management Omni that were previously not integrated. During 2025 and with some work continuing into 2026, we plan to move away from multiple TMS, ERP and HRIS systems to a rationalized IT network that is more appropriate for a unified singular company. We expect these changes to reduce redundancies and enhance efficiencies across the organization. Working with 6,600 professionals that delivered on

: the targeted integration synergies gives me confidence that we will be just as successful in executing the transformation.

Sean Stewart, Chief Executive Officer, Forward Air: I will wrap up with a few comments on the fourth quarter and then turn the call over to Jamie. Our results for the quarter were driven by consistent performance in the intermodal segment and yet another solid quarter at the Omni Logistics segment, achieving its best quarterly reported EBITDA result since the transaction. Those results were further enhanced with additional round of cost reduction actions previously announced that equate to approximately $20,000,000 on an annualized basis. The expedite freight segment on the other hand did not meet our expectations and income from operations declined compared to a year ago, primarily due to the decrease in volume in line with the market at large and a pricing strategy put in place prior to the transaction that focus more on growth than profitability. As noted, the decrease in volume is generally in line with the LTL market, which continues to be impacted by the prolonged slowdown in the freight environment.

The expedited freight segment fundamentals remain intact. We continue to be one of the best providers in the expedited service in all of North America in both on time service and claims ratio performance. We believe the service we provide will be the ultimate driver of customer retention and growth going forward. The single largest issue was the pricing strategy that we discussed last quarter. What may not be as understood is the change in the mix of freight and how long it takes to remedy historical pricing actions.

The change in mix was a shift from our most profitable dense freight and then subsequent growth in our class based customers. As you know, class rated tariffs are less profitable than our traditional density rated tariff. And as everyone knows, it takes months to rectify a single poor pricing decision. As covered on our previously earnings calls, the good news is we started implementing corrective pricing actions during the fourth quarter and are seeing improvement that aligns with our expectations. We expect to see the full impact of the corrective actions by the February and expect to shed some poorly priced freight from our system as a result.

All else being equal, we also expect to see a commensurate yield improvement in the second quarter and beyond. Our pricing strategy whether class based or density based will reflect the quality of our service we provide. I want to reiterate and ensure you the value and integrity of our network remains intact. Going forward, we expect to closely monitor how our volume is impacted and take appropriate cost actions to mirror the change to profitably run our network. With that, I will now turn the call over to Jamie to go through the results from the quarter.

Jamie Pearson, Chief Financial Officer, Forward Air: Thanks, Sean, and good afternoon, everyone. Getting right to it and beginning with the fourth quarter results, revenue for the quarter was $633,000,000 and on a required GAAP reporting basis, it was an 87% or $294,000,000 increase as compared to the fourth quarter of the prior year. The increase over the prior year was largely driven by the Omni transaction. Since we did not own Omni in the fourth quarter of twenty twenty three, it is difficult to make a meaningful year over year comparison. So I will focus our comparisons for the Omni segment on a sequential basis.

To that point, on a sequential and more comparative basis, consolidated revenue remained relatively flat, decreasing 3.5% or $23,000,000 from $656,000,000 last quarter to $633,000,000 this quarter. Looking at our three reporting segments, Expedited Freight, Intermodal and Omni Logistics, revenue at Expedited Freight decreased $13,000,000 or 4.7% to $266,000,000 from the previous year’s comparable quarter of $279,000,000 The decrease was primarily driven by a 5.8% decline in revenue per hundredweight including fuel surcharge and a 4.3% decrease in tonnage per day. At the intermodal segment, revenue of $60,000,000 was flat compared to the fourth quarter of twenty twenty three. An increase in revenue per shipment of 3.2% was offset by a decrease in the number of dray shipments of 2.8%. The revenue increase from Omni Logistics, which was not included in the previous year’s comparable quarter, was the full $326,000,000 On a sequential basis, fourth quarter revenue at the Omni segment decreased $9,000,000 or 2.7% compared to the $335,000,000 reported in the third quarter of twenty twenty four.

For the fourth quarter, we reported consolidated income from continuing operations of $76,000,000 This includes a goodwill impairment adjustment of $79,000,000 related to the OmniLogistics segment that favorably impacted the quarter. Accounting rules require goodwill impairments to be retrospectively adjusted as purchase accounting adjustments Consolidated EBITDA as defined in our credit agreement was $69,000,000 for the fourth quarter or an 11% margin. As you heard from Sean, for the full year 2024, we reported $3.00 $8,000,000 near the top end of our guidance range. The margin for the full year was approximately 12%. Regarding consolidated EBITDA for the prior three quarters, we have adjusted the previous reported amounts by the actions we took in December to improve our cost structure.

The credit agreement allows for the inclusion of the unrealized and pro form a savings from these actions to be included in a historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred. As such, we adjusted prior quarters to reflect the amounts of the cost savings. If you would, please reference Page five of the slide presentation issued today and you will be able to see what we reported in the past and updated for the most recent cost out and pro form a actions. Given the transaction expenses incurred in the first quarter of twenty twenty four and the ensuing noise in the second to the fourth quarters, we anticipate that the quality of earnings to demonstrably improve in 2025. On a year over year basis, the first quarter of twenty twenty five will be much cleaner than the first quarter of twenty twenty four and so on.

Again, in transparency, we have detailed the information used to build up the consolidated EBITDA results on Page 16 of the presentation. Turning to cash and liquidity. Cash used from operations in the fourth quarter was $31,000,000 As covered in the second quarter earnings call, we discussed inflecting to cash flow positive in the back half of twenty twenty four. And to that point, in the third quarter, we reported cash provided by operations of $51,000,000 Combined with the fourth quarter, net cash provided by operating activities was $20,000,000 compared to the $97,000,000 of cash used Definitionally, that is absolutely inflecting positive. As for liquidity, we ended the fourth quarter with $382,000,000 1 hundred and 5 million dollars in cash and $277,000,000 in availability under the revolver for a total of $382,000,000 The $78,000,000 sequential decrease in the third quarter was a result of a $40,000,000 reduction to the credit facility size in conjunction with the amendment and a $38,000,000 use of cash, which was predominantly impacted by $60,000,000 in interest expense payments made during the fourth quarter.

And as usual, in commensurate with my past practice, I would like to leave you with a few points of light for the quarter. The first of which is the amendment. While it may feel like a long time ago, it was literally less than two months ago that we amended our credit facility. The great news is the two months of preparation and negotiations should benefit us for years to come. As a refresher, we treated a one time $40,000,000 reduction in the facility size for four years of additional financial flexibility with significant covenant headroom.

Most of you who know me know I do not take a reduction in liquidity lightly. But all things considered, this was a very good trade for us as it should alleviate covenant concerns over the immediate future as we ended the year with $59,000,000 in cushion, which in turn will allow us to focus on executing our transformation. We are incredibly fortunate to have the support of our lenders for which I owe a debt of gratitude and appreciation to all of those involved. Point two is our continued focus on cash conversion, liquidity and more importantly the results we are seeing. In the first half of twenty twenty four, much of our cash was consumed by transaction costs, integration expenses, debt principal pay down and other legacy calls on cash, none of which benefited the company.

In the second half of the year, we saw significant reduction in these items, which contributed to an increase in our cash and cash equivalents balance by $20,000,000 And again, we ended the year with a little less than $400,000,000 in liquidity. But ultimately, as Sean noted, turnarounds of this size, magnitude and complexity are not linear. Some quarters are better than others and that was certainly the case for us in the fourth quarter. While we could have performed better financially in the fourth quarter, we absolutely killed it in the transformational changes we made to the business that should serve as the foundation of stability in 2025 and growth in ’twenty five and beyond. As everyone knows, there is always a lag from the time that cultural changes are injected into a company’s DNA and the time that they bear fruit.

And ’twenty four was that pivotal period of time. And I’m very much looking forward to what we can deliver as a combined company. Finally, regarding the strategic alternatives review that we announced last month, as we indicated in that press release, we do not intend to disclose developments related to this process until the board determines that further disclosure is both appropriate and or necessary other than to say that it is progressing as expected. As such, we respectfully ask that you keep your questions focused on our earnings as we will not be sharing any information about the process. I will now pass the mic back over to Sean for closing comments before Q and A.

Sean Stewart, Chief Executive Officer, Forward Air: Thank you, Jamie. I am proud of what our team accomplished in 2024. We know we have more work to do to achieve the results we know we are capable of delivering. We started 2024 playing a lot of defense and transitioned to play in more offense by the end of the year, serving as a springboard for 2025 and beyond. Our associates around the world came together as one and I am confident in our ability to execute our strategy, grow the company and enhance shareholder value.

We will remain focused on meeting our customers’ needs and are making the necessary investments that will allow us to benefit from any rebound in the freight environment when it occurs. I will now turn the call over to the operator to take questions. Operator?

Operator: Our first question is coming from Bruce Chan with Stifel. Please go ahead. Your line is open.

Andrew Cox, Analyst, Stifel: Hi, good afternoon, Sean and Jamie. This is Andrew Cox on for Bruce. Just wanted to touch on the tariff and trade disruptions potentially at Omni. I mean, being cognizant that it’s kind of hard to keep up with the tariff trade news these days. But I would like to just get your perspective on the changes and how you are preparing for the changes that you may be anticipating?

Any color on customer discussions or planning here would be helpful. Thank you.

Sean Stewart, Chief Executive Officer, Forward Air: Hey, Andrew, it’s Sean. Thanks for the question. As you said, it’s really difficult to project how freight volumes and the revenue might be impacted from these tariffs. I think I’ve said it in the previous quarters. We are pretty vast in many of the Asian countries, not just China.

So we’re a lower single digit today ex China into The U. S. So that trade may continue and the tariffs will have to be absorbed or those customers reposition out of other countries. So we don’t see a major impact there. Probably closer to home though regarding Mexico and Canada, we’ve got that thirty day kind of time out period, if you will.

But at the same time, the commodities that were mentioned such as fuel, energy, alcohol, food is not the commodities in our business network. So we don’t see a major impact there as well. So we feel pretty good, always subject to change. We’re staying as close as everybody else is to the potential of other commodities. But as we see it right now, it’s not a major risk to our business.

Andrew Cox, Analyst, Stifel: Okay, Sean. Thank you. That’s helpful. And as a follow-up, we’ve heard some, whether it be rumors or rumblings of peers standing up potential A2A networks and competition with you all. So we kind of just want to get your perspective on whether you see this happening, whether it’s impacting the market to date and how could you be planning or changing processes to compete in a market that’s potentially becoming more competitive over time?

Thank

Sean Stewart, Chief Executive Officer, Forward Air: you. Yes, sure. I love this question. So we like competitors. It’s what keeps you sharp in life.

And I would also say at the same time, people that are trying to stand up a real network, I wish them the best. There’s a difference in people playing in consolidation and heavy haul lanes and truly setting up a true network. But our strategy here is while there are competitors, many of who we’ve worked with for years and respect a lot, we got to stay focused on ourselves and differentiate ourselves through the technology, the service that we offer is unmatched, especially with our visibility tools. So our value isn’t just offering low rate and doing what tactics they’re putting in place because that only lasts so long. But truly more meaningful is what we do, what we offer, what we service and best in class people in the industry and we’re going to stay steadfast continuing to improve day on day and offer best in class for what we truly are.

Andrew Cox, Analyst, Stifel: Okay. I appreciate the time. I’ll pass it back to the competitors to keep us sharp. Thanks.

Operator: We’ll take our next question from Bascome Majors with Susquehanna. Please go ahead. Your line is open.

Bascom Majors, Analyst, Susquehanna: Yes. Thanks for taking my questions. Jamie, I want to talk on the balance sheet a little bit in cash flow. Do you think the business can be cash flow positive this quarter without the bond payment? And any other thought some kind of cash flow seasonality tops down as we look forward in the next three, six months?

Jamie Pearson, Chief Financial Officer, Forward Air: Yes. Bastogne, love you the way you guys always like to get me into trying to give guidance, which I will politely and respectfully pass. Other than to say we have about $170,000,000 a year in interest payments between the term loan and the senior secured notes and whatever the undrawn portion of the RCF. So it really doesn’t take a lot once we get through all the transaction expenses from the Omni deal plus all the legacy earn outs plus working capital true ups plus all the consultants that we had to pay, if we can just get back to running the basics of our business, it doesn’t take a lot to be free cash flow positive. We actually demonstrated that in the third quarter of this year.

And if you think about, I think I was in the second or third quarter, mostly the last call that I said we’ll be inflicting cash flow positive in the second half of this year. Combining the third and fourth quarters, it’s exactly what we did. So we just need to keep executing is what it amounts to be. We said it’s an asset light business model. CapEx isn’t that much.

The biggest fixed cost we have is interest. And again, it’s only $170,000,000 a year.

Bascom Majors, Analyst, Susquehanna: And as we think about the business and what it could be worth on some of the parts basis, is there anything particularly different in the unlevered cash generating potential of your different segments relative to their EBITDA? Just want to think through the free cash flow and if EBITDA is representative across the segments. Thank you.

Jamie Pearson, Chief Financial Officer, Forward Air: I’m so sorry about that. I heard everyone you said. Can you say that again?

Bascom Majors, Analyst, Susquehanna: Yes. Understood. So from

Tony Carino, Senior Vice President of Treasury and Investor Relations, Forward Air: some

Bascom Majors, Analyst, Susquehanna: of the parts basis, if we’re looking at your segments and their cash flow generating potential, is the EBITDA of those businesses representative of their free cash flow generating potential on an unlevered basis? Just want to understand if there’s anything unique as we think about where the business generates the cash to support the debt payment? Thank you.

Jamie Pearson, Chief Financial Officer, Forward Air: Yes, yes, yes, yes. Got you. Yes, so a little bit different between the warehouse and VAS piece of our business relative to the LTL expedited and pickup and delivery and even intermodal for that matter. I’d say the good news is it’s not that different On the former of what I said, EBITDA is almost tandem out to unlevered free cash flow. On the latter, given the fact that we are asset light and given the fact that we are very independent contractor centric, we don’t even have that much on CapEx.

In any given year on the $1,000,000,000 plus in revenue that we have from the expedited segment, we spend around $30,000,000 a year in CapEx. The only CapEx we really have on the forwarding side would be more along the lines of technology. So good news is not that different between the two, a little bit lower on the expedited piece given the tractors and trailers, the forklifts and then what we do for the terminals, but pretty solid cash conversion, which we’re going to start focusing in on that Bascon next quarter and beyond, pretty strong cash flow conversion when stood up and operated appropriately.

Bascom Majors, Analyst, Susquehanna: Thank you, Jamie.

Operator: And we can take our next question from Stephanie Moore with Jefferies. Please go ahead. Your line is open.

: Great. Good afternoon, everybody. This is Joe at Jefferies on for Stephanie Moore. I maybe wanted to drill in on the expedited freight shipments per day. You mentioned fairly consistent with what we’ve seen in the broader space in LPL, both, I guess, sequentially and year over year on a volume perspective.

Sean, when you started, you had talked to a lot of your customers and quite a lot of fears about customers leaving forward with the transaction. I wanted to maybe come back to that thought. I don’t know if you’ve had any conversations with customers lately, what have they been telling you? And if we can maybe just unpack that down 9% shipments per day, how much of that is all just macro? Is there any movement with the changes in yields?

Is there any movement in customers? Just really want to unpack that.

Sean Stewart, Chief Executive Officer, Forward Air: Sure, Joe. So, yes, obviously, I talk to them daily and not much has changed. Our legacy Freight Forwarder customers, obviously, where they’re entrepreneurs and where they need and have the ability to build density lanes, they’re going to continue to do that. And on the onset of me coming to Ford, I said, you got to run your business. I want to be that continual trusted player for you and your expedited freight segment on what you can’t build out on your own.

And so we still see that. In our conversations with them, they pretty much tell us our business is down just like everyone else in the market. So it’s not like we’re losing confidence with them, Maybe some of them, but they haven’t told me that to my face. But ultimately across the board, I think we’re in a very good place with those legacy customers and we continue to service them extremely well. And just overall, where the volume is down, it’s because everyone’s volume is down.

: Got it. And then from a 3Q to 4Q, I guess, expedited freight operating margin perspective, it deteriorated a lot. Could we guess maybe talk about with the focus on cost controls and the focus on pricing, what drove what was essentially 400 basis points of kind of sequential margin degradation?

Sean Stewart, Chief Executive Officer, Forward Air: Yes. So Joe, in that aspect, we talked a little bit, I think in Q3, started in Q2, but the mix and when I say the mix, the difference between class based tariff and density based tariff really started to shift in mid-twenty twenty four. And that’s when we called out the actions in the pricing. So what was happening is the class based tariff customers mainly are 3PLs and let me be clear, 3PLs are extremely important to us. It was something that we did wrong, nothing that they did wrong.

We had reduced our class based tariffs astronomically and it’s not what we should have done in this type of network. So what was happening is that’s a true door to door service. So when you look at door to door with our 97% open ZIP codes in The United States, it was not a good situation. So that’s what we had to enact and put the first, I’ll say, roughly 50% of the tariffs got adjusted at the November with not a lot of trade to impact December. And then the remaining majority of them went into effect early February of twenty twenty five.

So as we stated, we will start to see some impact in Q1 and a full impact in Q2. We feel extremely strong in the actions that we’ve taken to keep as much of that volume in our network with those traditional 3PLs on a class based tariff. But at the same time, we can’t continue to, as I’d like to say, do business with practice for practice. We have to make our margins. And so that’s really it.

We have not seen a degradation from our traditional density based freight forwarder customers at all.

: All right, understood. That’s really helpful. And so I want to squeeze in one more question. Maybe with this change, is there any change in thinking on what that margin can kind of look like for that segment in the past and under prior leadership? It was kind of a double kind of 10% type bogey.

Was this change in how you guys are looking at the business? Does that kind of fundamentally change maybe what margin you guys are looking to achieve in this segment? Or is there any way of how you guys are thinking about that?

Jamie Pearson, Chief Financial Officer, Forward Air: Yes, Joe. Again, love the breadcrumbs to potentially try to give guidance. What I would say is, if you just go back and look, the last three quarters of twenty twenty four, it was basically almost double what it is now. You go back in 2023 mid teens, let me give you a very salient data point relative to where we ended on Page 17 of the presentation, you’ll see we ended the fourth quarter at 6.6%. And then if you just kind of go down where our peers ended the quarter, you’re in the mid teens to almost 20% EBITDA margin.

And I mean this with as much respect as I can muster having spent a long time at a lower service provided LTL carrier. Our network is better than those peers that are that I just spoke to and our level of service is better than those peers and our claims ratio is better than those peers. So in terms of where I think you said what should it look like, I’m not going to tell you what I think it should look like. I’ll tell you what it was and where our peers are and I think we’re better.

: Fantastic answer. Thank you so much for the time.

Operator: And we’ll take our last question today from Christopher Kean with The Benchmark Company. Please go ahead. Your line is open.

Christopher Kean, Analyst, Benchmark Company: Yes. Hi, good afternoon, guys. Thanks for the question. Can you maybe talk about some of the drivers of the Omni business in the quarter? Did it benefit at all from the surge in import volumes that we saw?

And how should we think about it for next year?

Jamie Pearson, Chief Financial Officer, Forward Air: Yes. Hey, I’ll jump in there, Chris, and then let Sean back clean up. So I’d say three things. One, I did see an increase in air volume, did see an increase in ocean volume offset by candidly pretty soft pricing environment in both those verticals. But you add to that what’s also in Omni is a very strong warehouse and VAS operation that has a pretty good exposure to some tech clients and customers that are just literally knocking the cover off of the ball.

It’s a great portfolio investment, Chris, in terms of you want to invest in the transportation space. This is a pretty damn good one if you want exposure across the spectrum of different services. But I’d say it’s a little bit of air, a little bit of ocean offset by and that’s volume that is offset by a slightly softer rating environment, but also supported by strong warehouse and VAS operations.

Sean Stewart, Chief Executive Officer, Forward Air: Yes. And Chris, I would add, we continue to as we’ve integrated the networks, I would say the our legacy Omni teammates know the Ford capabilities much more than they did prior to. And what I mean by that is, there’s a lot of different ways of thinking of how best to use for both in truckload and in LTL. So from a solutions and penetrating customers in regards to a solution selling, there’s some uptick there as well. But Jamie is right.

Very big contract logistics operations in the high-tech space that did extremely well on their omni segment. And we did see an uptick in both our Air and Ocean segments for sure.

Jamie Pearson, Chief Financial Officer, Forward Air: Yes. And Chris, I’d actually point you to Slide 18 as a material and just kind of follow the progression of Omni’s performance since the acquisition. It’s improved by a couple of hundred basis points every single quarter. I think there’s a in my opinion, at least the market checks that I’ve heard and they’re unsolicited by the way, there’s a misperception in the market on Omni. If you look at this page, it is performing very well, within a couple of hundred basis points of some of the best competitors in the space.

So operationally, it’s performing very well. The only thing that we’re really spending a fair amount of time on is just the integration of the back office operations. Operationally, it’s finding its stride.

Christopher Kean, Analyst, Benchmark Company: Okay, great. And then I know you’re you don’t want to talk too much about guidance, but I mean as we think about the expedited freight and the pricing strategy, I mean should we think about limited buying growth and more pricing? And if that’s the case, can you get margins in that business if the volumes are pretty weak?

Jamie Pearson, Chief Financial Officer, Forward Air: Well, if you isolate it to expedited, our expectations are that we will see pricing or yield improvement as we go throughout the year, especially on a comparative basis. What I think Sean I don’t think I know Sean said in his prepared remarks is that we are shedding some unprofitable volume. And man, I did a very protective of our network and Sean said it very well. We don’t need to practice. We don’t need to be carrying negative margin freight on our expedited network.

So in terms of what historically has happened when you pushed on price and yield and pushed in those areas, yes, you can think that it would be reasonable to see some volume decline. But the opposite is also true. We’re already seeing the benefit of the yield and granted by the way it’s only two, almost three weeks away from it being implemented in total. So it’s too early to tell. We got to focus on rightsizing the network in terms of the bottom line.

But I would agree with you in terms of higher yields and softer volumes.

Sean Stewart, Chief Executive Officer, Forward Air: But that doesn’t mean, Chris, that we I don’t have a high expectation of growth by our team. So whether it’s keeping the volume or replacing the volume, that’s what we’re going to do in 2025. So we have the ability, I don’t want to do it, but we have the ability. If we don’t have the volumes, we can take then we can take cost out of the network for sure. But that’s not what I want to have to be forced to do.

We got to grow and that’s our focus.

Christopher Kean, Analyst, Benchmark Company: Okay. Got it. Thank you, guys. Talk to you later. Appreciate it.

Sean Stewart, Chief Executive Officer, Forward Air: Thank you.

Operator: And we’ll take a follow-up question on the line from Baskin Majors with Susquehanna. Please go ahead. Your line is open.

Bascom Majors, Analyst, Susquehanna: Thanks for letting me back in. Just to your earlier comments on some of the different businesses within Omni, now that we’re almost a year into ownership, can you talk really high level about some of the exposures and how it generates profits between transactional air transactional ocean and some of the warehousing, value added services and customs brokerage?

Jamie Pearson, Chief Financial Officer, Forward Air: Yes. I’ll jump in there and then again let Sean correct me where I’m wrong. As we’ve said and we’re going to stop saying this pretty soon, Bascon, is it is a collection of 12 companies that have very strong positions in their individual verticals. In terms of generating profits, you’ve got the air forwarding, you’ve got the ocean forwarding, you’ve got warehouse, you’ve got customs and brokerage and value added services. So it is a like I said earlier, it’s a great portfolio of exposure to this space.

I think the real value that’s going to come out of this is once we integrated the networks in the first quarter of twenty twenty four, you saw how the performance stepped up, I mean, exponentially, went from negative five to positive five literally in one quarter. Sean is very astute in terms of correcting me when I said, hey, we would expect some softer volume. I mean that in the very immediate future. On a longer term basis, by the end of twenty twenty five as you go through 2025, I would expect the volumes to start to actually recover and more to come. ’24 was an investment year.

’25, we have the foundation in place. We’ll do that for the first six to nine months. And then at the end of twenty second half of twenty twenty five going to 2026, that’s when I really expect the growth to start kicking in. So, Bascom, I’ll say it this way

Sean Stewart, Chief Executive Officer, Forward Air: and Jamie did a good job. Those 12 companies have a multitude of those offerings in them. So we spent most of 2024 moving segments, closing entities and rolling them into certain entities. So then in 2025, we can start coming to you guys at a later date. I won’t speak for Jamie and his team, but at a later date because I really want to report out to you guys in that ground air ocean contract logistics and custom brokerage segments.

So you guys really have an understanding on this side of what’s doing well and what’s maybe not doing so well and is that in line with the market etcetera. So more to come Bascom on that.

Bascom Majors, Analyst, Susquehanna: That’s helpful and we look forward in that. And to your last point about integration driving volume, I don’t know if Eric is on the call, your Chief Commercial Officer, I think he’s been there two point five months, but we’d love to hear any early thoughts from him on what he sees as opportunities to really move to offense like you’ve said a few times today.

Sean Stewart, Chief Executive Officer, Forward Air: Well, Bascom, he is not in the room, but surely happy to have him come on at a later date if that’s warranted. But he’s actually in the room here in our headquarters with his top leadership and the top sales reps from around North America doing a strategy session on the new go to market strategy. So that’s exactly where all of us want them to be and that’s where they are. So yes, happy to share more as he gets really going here in his early stages. Asking, we would never expose someone that new to you guys in this process.

Bascom Majors, Analyst, Susquehanna: Thank you for the time guys. Appreciate it.

Sean Stewart, Chief Executive Officer, Forward Air: Appreciate you.

Operator: And there are no further questions on the line at this time. I’ll turn the program back to Mr. Stewart for any final remarks.

Sean Stewart, Chief Executive Officer, Forward Air: All right. Listen, I want to thank you guys so much, everyone for joining today. Really look forward to 2025, and I look forward to connecting with each of you soon. If you have any follow-up questions, please reach out to Tony. Have a great one.

Take care.

Operator: This does conclude today’s Forward Air fourth quarter and full year twenty twenty four earnings conference call. Please disconnect your line at this time and have a wonderful day.

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