Welcome to the Forward Air Fourth Quarter and Full Year 2024 Earnings Conference Call. 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 Tony Carreno, Senior Vice President of Treasury and Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Forward Air's fourth quarter and year end 2024 earnings conference call. With us this afternoon are Shawn Stewart, Chief Executive Officer; and Jamie Pierson, Chief Financial Officer. By now, you should have received a press release announcing Forward Air's fourth quarter 2024 results, which was also furnished to the SEC on Form 8-K. We have also filed a slide presentation outlining fourth quarter 2024 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 principles 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 Shawn.

Good afternoon, everyone, and thanks for joining the call today. I appreciate your interest in Forward 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 $308 million, which is near the top of our guidance range of $300 million to $310 million. We successfully closed out a very busy and noisy year that began with the closing of the Omni transaction last January, just 13 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 am pleased with the pace and rigor at which we moved. Over the course of the year, we've 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 Forward 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…

Thanks, Shawn, and good afternoon, everyone. Getting right to it and beginning with the fourth quarter results. Revenue for the quarter was $633 million and on a required GAAP reporting basis, it was an 87% or $294 million 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 2023, it is difficult to make a meaningful year-over-year comparison. So I will focus our comparisons with 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 million from $656 million last quarter to $633 million this quarter. Looking at our three reporting segments, Expedited Freight, Intermodal and Omni Logistics. Revenue at Expedited Freight decreased $13 million or 4.7% to $266 million from the previous year's comparable quarter of $279 million. 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 million was flat compared to the fourth quarter of 2023. An increase in revenue per shipment of 3.2% was offset by decrease in the number of trade 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 million. On a sequential basis, fourth quarter revenue at the Omni segment decreased $9 million or 2.7% compared to the $335 million reported in the third quarter of 2024. For the fourth quarter, we reported consolidated income from continuing operations at $76 million. This includes a goodwill impairment adjustment of $79 million related to the Omni Logistics segment that…

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?

The floor is now open for questions at this time. [Operator Instructions] Our first question is coming from Bruce Chan with Stifel. Please go ahead. Your line is open.

Hi. Good afternoon, Shawn and Jamie. This is Andrew Cox on for Bruce. I 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.

Hey, Andrew. It's Shawn. Thanks for the question. It's -- 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 30 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.

Okay, Shawn. 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 you.

Yeah. 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, both -- 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.

Okay. I appreciate the time. I'll pass it back to the competitors to keep us sharp. Thanks.

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

Yeah. Thanks for taking my questions. Jamie, you 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 thoughts on kind of cash flow seasonality tops down as we look forward in the next three, six months?

Yeah, Bascome. 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 million 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 earnouts, plus the working capital true ups plus all the consultants that we had to pay. If we can just get back to running the base -- 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 it was in the second or third quarter, much in the last call that I said we'll be inflecting 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. Since 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 about $170 million a year.

And as we think about the business and what it could be worth on a -- some of the parts basis, is there anything particularly different in the unlevered cash generating potential of your different segments relative to their EBITDA? I just wanted to think through the free cash flow and if EBITDA is representative across the segments. Thank you.

I'm so sorry, Bascome. Though I heard every word you said, can you say that again?

Yeah. Understood. So from some 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.

Yeah. Got you. Yeah. So a little bit different between the forwarding aspect and 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, 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 billion plus in revenue that we have from the Expedited segment, we spend around $30 million 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, trailers and forklifts and then what we do for the terminals, but pretty solid cash conversion, which we're going to start focusing in on that Bascome next quarter and beyond, pretty strong cash flow conversion when stood up and operated appropriately.

Thank you, Jamie.

[Operator Instructions] 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 Hafling 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 on LTL, both, I guess, sequentially and year-over-year on a volume perspective. Shawn, 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? I just really wanted to unpack that.

Sure, Joe. So yeah, 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 Forward, 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 you guys 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?

Yeah. 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-2024. And that's when we called out the actions in the pricing. So what was happening is the class based tariff customers, mainly our 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 will say roughly 50% of the tariffs got adjusted at the end of November with not a lot of trade to impact December. And then the remaining majority of them went into effect early February of 2025. 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 sorry, 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, kind of a doubles 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?

Yeah, Joe. Again, we love the breadcrumbs to potentially trying to give guidance. What I would say is, if you just go back and look at the last three quarters of '24, it was basically almost double what it is now. You go back in 2023, mid-teens, let me give you a very salient of 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 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.

A fantastic answer. Thank you so much for the time.

And we'll take our last question today from Christopher Kuhn with the Benchmark Company. Please go ahead. Your line is open.

Yeah. 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?

Yeah. Hey, I'll jump in there, Chris, and then let Shawn back clean up. So I'd say three things. One, did see an increase in air volume, did see an increase in ocean volume, offset by candidly a 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 -- that's volume that is offset by a slightly softer rating environment, but also supported by strong warehouse and VAS operations.

Yeah. And Chris, I would add, we continue to, as we've integrated the networks, I would say the -- our legacy Omni teammates know the forward 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 solution selling, there's some -- 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.

Yeah. And Chris, I'd actually point you to Slide 18 of the material and just kind of follow the progression of Omni's performance since the acquisition. It's improved by a couple of 100 basis points every single quarter. I think there's -- 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.

Okay. Great. And then I know you don't want to talk too much about guidance, but I mean as we think about the Expedited Freight and the pricing strategy, and should we -- should we think about limited volume growth and more pricing? And is that the case, can you get margins in that business if the volumes are pretty weak?

Well, if you isolate it to expedited, our expectations are that we will see a pricing or yield improvement as we go throughout the year, especially on a comparative basis. What I think Shawn -- I don't think -- I know Shawn said in his prepared remarks is that we are shedding some unprofitable volume. And man, I did -- very protective of our network and Shawn said it very well, we don't need to practice. We don't need to be carrying a negative margin freight on our expedited network. So in terms of what historically has happened when you pushed on price and yield and pushing those areas, yeah, you can think that it'd 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.

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 them -- 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.

Okay. Got it. Thank you, guys. Talk to you later. Appreciate it.

Thank you.

And we'll take a follow-up question on the line from Bascome Majors with Susquehanna. Please go ahead. Your line is open.

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.

Yeah. I'll jump in there and then again, let Shawn correct me where I'm wrong. As we've said, and we're going to stop saying this pretty soon, Bascome 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 the 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 2024, you saw how the performance stepped up, I mean exponentially went from negative 5 to positive 5 literally in one quarter. And Shawn is very astute in terms of correct me when I said, hey, would expect some softer volumes, I mean that in the very immediate future. On a longer term basis, by the end of '25 as you go through '25, 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 the second half of '25, going into '26, that's when I really expect the growth to start kicking in.

So Bascome, I'll say it this way 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, etc.? So more to come Bascome on that.

No. 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 2.5 months, but would 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.

Well, Bascome, 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 yeah, happy to share more as he gets really going here in his early stages.

Bascome, we would never expose someone that new to you guys in this process.

Thank you for the time, guys. Appreciate it.

I appreciate you.

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.

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.

This does conclude today's Forward Air fourth quarter and full year 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.