Forward Air Corporation (FWRD) Q3 2026 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to the Forward Air Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Tony Carreno, Senior Vice President of Treasury and Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Forward Air's Third Quarter Earnings Conference Call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer; and Jamie Pierson, Chief Financial Officer. By now, you should have received a press release announcing Forward Air's third quarter 2026 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining third quarter 2026 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 may be considered forward-looking statements. 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 2026. 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 SEC 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 thank you for joining us. I am pleased to announce that our team delivered another quarter of solid results. We have reported the best quarterly revenue in company history for the last 2 consecutive quarters. Operating revenue was $674 million this quarter, which is an increase of $42 million compared to $632 million in the third quarter of 2025, while operating income improved to $44 million compared to $15 million a year ago. And we posted our best consolidated EBITDA results in nearly 3 years. Consolidated EBITDA, which is calculated pursuant to our credit agreement, improved by almost 30% to $101 million compared to $78 million a year ago. It is important to note that our improvement was not localized at any one particular segment, but strong across the board. Expedited Freight reported its best revenue, best operating income and best reported EBITDA since the beginning of 2024. The operating ratio also improved by 330 basis points from 92.5% to 89.2% compared to the third quarter of 2025. The improvement was positively impacted by an increase in demand of our already time-sensitive and expedited service offering with shipments and tonnage per day both notably higher compared to a year ago. The Omni Logistics segment also continues to see an increase in demand for its services, most namely our contract logistics and air and ocean services. In the third quarter, this segment achieved its best reported EBITDA margin since the beginning of 2024. And the Intermodal segment reported its best revenue in more than 3 years, led by an increase in drayage revenue per shipment, and has returned to its industry-leading margins. Overall, I believe our team has the company moving in the right direction. We have made a tremendous amount of progress in the current market condition, both on a macro and industry-specific basis. However, I believe we have an opportunity to continue improving. We plan to maintain the momentum and grow the business by consistently delivering best-in-class customer service. Our customers expect reliability, consistency and dependable solutions, and our goal is to exceed those expectations across every single service we provide. By remaining focused on continuous improvement, operations excellence and customer satisfaction, we plan to continue strengthening our already deep relationships and improving our value proposition. Regarding the broader logistics space, capacity in the trucking industry has been tightening as the number of CDLs continue to be constrained. Combine that constraint with consistent demand, and that puts us in a very good place to continue improving profitability as we have each quarter this year. In constrained environments such as this, shippers typically focus on stability and consistency to ensure capacity and to mitigate risk. We believe we are well positioned to grow in this market environment through disciplined cost management and exceptional customer service. As you saw a few weeks ago, we announced a definitive agreement with one of our largest customers to retain a significant portion of the services we provide for them. As previously disclosed, we have been engaged in discussions with the customer regarding its planned transition and our intent to retain as much of the business as possible. As also discussed, this change was a function of the customer's operational and supplier diversification initiatives and had nothing to do with the exceptional service we have provided during our 20-plus year relationship. Under the new agreement, the customer has agreed to continue utilizing the company for a significant portion of the services currently provided to them for a period of 2 years. Of the services to be transitioned, we have already started that work, which is expected to occur starting this month through March of next year. The great news is the revenue from the services that are retained has continued to grow throughout 2026 and is expected to eclipse the total revenue for all of 2025 and anticipated to continue growing into 2027 and beyond. We are pleased to bring this agreement to completion as we believe it reflects on our strength and our relationship with the customer and the exceptional level of service our team has and will continue to deliver. With that, I will now turn it over to Jamie to go through the detailed results for the third quarter.

Thank you, as always, Shawn, and good afternoon, everyone. Jumping right into it. As you heard from Shawn, we reported $44 million in operating income for the quarter, which is almost triple the $15 million of operating income we reported a year ago. Consolidated EBITDA increased $23 million on a year-over-year basis in the third quarter to $101 million compared to $78 million for the third quarter of last year. The margin also improved by 280 basis points from 12.3% to 15.1%. Continuing on to LTM basis. Consolidated EBITDA was $342 million as of the end of the third quarter, almost $50 million higher than the same LTM period last year. If I could refer you to Page 30 of the presentation, on an adjusted EBITDA basis, the third quarter results improved by $24 million to $99 million compared to $75 million in the third quarter of last year, which demonstrates the steady improvement in the quality of our earnings and its subsequent conversion to cash. Turning to the segments. Expedited Freight's reported EBITDA improved by 50% compared to a year ago. It increased from $30 million last year to $45 million this year, and the margin improved by 180 basis points from 11.5% a year ago to 13.3% this year. Flipping back to Page 14 of the presentation. On a year-over-year basis, the Expedited Freight segment delivered improvements across several key operating and revenue metrics, including tonnage per day, shipments per day, average weight per shipment and revenue per shipment, excluding fuel. As you heard from Shawn, the operating ratio also improved by 330 basis points to 89.2% compared to 92.5% a year ago. Our strategy remains focused on improving freight characteristics, increasing network density and maximizing the efficiency of our operating infrastructure. The quarter-over-quarter margin expansion provides further evidence of the progress we are making and reinforces the importance of staying disciplined and continuing to execute on these strategic priorities. At the Omni Logistics segment, reported EBITDA increased to $35 million in the third quarter compared to $33 million a year ago, and the margin improved by 170 basis points to 11.3% from 9.6% as we improved the efficiency and operating leverage of both our air and ocean and contract logistics offerings. At the Intermodal segment, we are seeing a return to the more consistent level of results that we are accustomed to see for this business. Reported EBITDA improved to $9 million compared to $8 million in the third quarter of last year, and the 14.3% margin this year was in line with the 14.5% margin a year ago. And I'll give you an update on the sales process in my closing remarks. Regarding cash flow, cash and liquidity, we reported $35 million of cash provided by operating activities in the third quarter compared to $53 million a year ago. On a year-to-date basis, we reported $76 million of cash provided by operating activities, which is a $9 million improvement compared to the $67 million in the same period a year ago. As for liquidity, we ended the third quarter with $446 million, which is a $45 million sequential improvement compared to the second quarter of this year and a $33 million improvement compared to the third quarter a year ago. The $446 million in liquidity is comprised of $185 million in cash and $261 million in availability under the revolver. Turning to an update on the sale of noncore assets. As a part of our portfolio optimization strategy and as previously announced, we successfully completed the sale of 2 smaller businesses within the legacy Omni segment. The sale of the first business was completed in the second quarter, and we closed on the second disposition early in the third. Our liquidity benefited by approximately $25 million from the monetization of these businesses with minimal impact to consolidated EBITDA. The remaining targeted divestiture that we announced was our intention to sell the Intermodal business. This business is back on track, and we have even more conviction today based on its recent performance and near-term prospects than ever before. The drayage market is on the upswing, and our pipeline is as robust as I've seen in my tenure here. Having said that, we have higher aspirations for it than the process yielded. So we're going to pause while we continue to add a few more solid quarters under our belt. We very well may revisit the sale if and when the market reflects what we believe is the fair value for this industry-leading management team and asset. By no means does this preclude a sale, just not on the original time line that we previously communicated. And consistent with past practice, I would like to leave you with a few parting thoughts. And at the risk of sounding repetitive to what we said last quarter, this is yet another best quarter since the transaction, which is no small accomplishment. And it is another stair step up, up from the $78 million of consolidated EBITDA we reported a year ago, up from the $93 million last quarter, up to $101 million this quarter. This is no longer a data point as we had now done this for 2 quarters in a row. Secondarily is our ability to control what we control, specifically costs. We are doing a very good job of controlling our direct and overhead costs, creating operating leverage as evidenced by the increase in our margins. Next is our ability to start growing into our capital structure and decreasing leverage, ending this quarter below 5x and nearly one full turn lower compared to this time last year and the lowest in nearly 3 years. Finally, is the agreement with our major customer. Their reliance on our services as they continue to grow speaks to the long-standing partnership and the quality of service we provide. The agreement and organic growth exhibited by the customer in 2026 should bring stability to our earnings, profitability and cash flow profile. I will now turn the call over to the operator to take questions. Operator?

[Operator Instructions] We'll go first this afternoon to Bruce Chan with Stifel.

First of all, congrats on all the progress this quarter. Obviously, it's been a fairly lumpy year getting to this point. So maybe just wanted to get an update on how we should start to think about normalized margins for the overall business, of course, but also the individual segments, whether you care to give that as a kind of mid-cycle target or any thoughts on 2027 or even what you have left in the bag from a kind of turnaround and margin improvement perspective? Any of that would be really helpful.

Bruce, it's Jamie here. I'd say a few things, I guess, as we go into the fourth quarter is we're seeing pretty similar trend. I mean, granted, I mean, we're literally a month into it, seeing pretty similar trends to what we're exiting the third quarter on and strong revenue per shipment, excluding fuel surcharge. I focused on that because I think that's what we can control, and that's what we're driving towards in terms of profitability of the network. I'd also say I expect to see the usual seasonality that we have in the past couple of years, at least since we've been here. Just keep in mind, Bruce, that there's fewer working days in the fourth quarter and the third quarter of every calendar year is usually one of the best for us in the calendar. So all else being, I guess, equal, we're seeing pretty similar trends just knowing that we're going to have some seasonality and there's fewer working days in the fourth.

Okay. That's super helpful. And then just as far as 2027, I know it's early and you don't like to give a lot of guidance, but are we kind of at a sustainable margin level? Or is there still a lot of wood to chop in terms of the margin improvement story?

Yes, you said you don't like to give a lot. We don't like to give any. So very kind of you to give us a little bit of credit. From my perspective, we've spent the last 2 years stabilizing this company so that we could take advantage of the situation that we're in. Shawn, I'm sure you've got something to add.

Yes. I would say, Bruce, the company is running extremely well, and the disciplines that we have in running this company is in our culture and our DNA now. So you'll -- I expect to see consistency. We don't have a crystal ball to what the market is going to do in 2027, but you'll see consistency from us for what we can control.

We'll go next now to Jacob Lacks with Wolfe Research.

So you saw a big acceleration in volume growth. What's really driving that if there's a particular end market that's been unusually strong? And to the extent this continues, are you comfortable with the owner-operator pipeline that's sufficient to handle further volume growth? Or do we potentially need to increase purchased trans to attract some new drivers?

Yes. What's driving it more than anything else is the way that we're running this network. We are going, obviously, in the, I guess, the IC market going to have a little bit more variable cost than our peers. But also -- we also have the best service, Jacob. Keep in mind that we've got the lowest CapEx, it's a fraction of our peers, and we're holding our direct operating expenses flat. So we're expanding margins. In terms of the volume pickup, it's not just the shipments, it's the weight. If you think about shipments are up 7.9%, weight up 6.9%, but also revenue, excluding fuel, is up 4.3%. So we're not pricing for profit. We're pricing for a network, and we're pricing in specific lanes. At the end of the day, we're looking for cash, not for price.

And I would say, to add to that, in the owner-operator network, our reputation is extremely strong out there. So yes, I mean, we're -- I'm really, really happy with the way we're running this network, and I'm really happy with our model. So no concerns from our part of continuing to add. We've added over 50 drivers from the beginning of this year to what we have today. So I'm not worried about getting drivers into our network as we flex.

And is there any sense you can give in terms of how much further excess capacity you have in the network?

Somewhere between 15% to 18% right now.

Okay. Okay. And then just on the customer agreement, is there any way you can help us how to think about 2027 Omni revenue? And I think you said retained services are expected to keep growing. Like can Omni as a whole grow revenue? I'm just trying to better understand exactly how much revenue.

Omni as a whole can grow revenue and will grow revenue. As it relates to the customer agreement, we use 2025 as our initial statement out there, which was $250 million. So when you look at the services that will be transitioned versus the growth we saw in 2026, that's where we're seeing the growth for what we're transitioning away, but the growth in the business that we're retaining will be greater than the $250 million that we did in 2025.

[Operator Instructions] We do have a question coming in now from Christopher Kuhn with StoneX.

I know there's a lot of moving pieces in that revenue per hundredweight ex fuel. So maybe just can you talk a little bit about core pricing and kind of the sort of outlook for your pricing as we go forward here? I know the weight was up, and that certainly kind of distorts the actual revenue per hundredweight or the core pricing.

Yes. I guess, Chris, I'm struggling with what you're looking for. I mean, obviously, with the weight per shipment being up as much as it is, it's the reason I don't like to look at revenue per hundredweight ex fuel because we all know as soon as weight goes up, yield gets pressure. We don't really ship yield. We ship revenue. So that's why we like to look at revenue ex fuel being up 4.3%. That to me is as core as it gets.

Yes, yes. Yes, that's what I was -- okay. That's fair. And then just the chart you always show on where the expedited freight business is in terms of the average on the operating margin. I mean how should we think about your progress or sort of the opportunity to either get there or to make progress going there? Obviously, this quarter was a good start.

Yes. We've been at this now, Chris, for 2-plus years to get to where we are. We've got the foundation established. It's been stabilized. Now we're going to take advantage of the growth. If you look at the delta between us and the peers by and large, keep in mind that we're always on a 1-quarter lag basis. We're reporting coincidentally with this quarter. This chart is 1 quarter behind. Look, we've got excess capacity. As Shawn said it, and you got to think about capacity in its pieces. You've got trucks, trailers, terminals and drivers. We are as flexible, if not the most flexible in the entire space because we can add drivers as, I guess, faster than just about anybody out there. So I'd like to soak up that extra 15 plus or minus percent capacity with the highest margin business that we can find.

Yes. So there's -- I mean, there's no reason why you can't approach that at some point over time?

Approach what over time?

The average target -- margin targets that you show on that chart there for the expedited business.

I mean, as Shawn said earlier, we're always looking to improve. We're not at all declaring victory, Chris. We're not -- we know there's more juice left in the tank. Our question is just a matter of when we can get there.

And gentlemen, it appears we have no further questions today. Mr. Stewart, I'd like to turn things back to you, sir, for any closing comments.

It's amazing when you do great results, you don't get that many questions. But listen, in closing, I'm very pleased that we have delivered another quarter of very solid results. All the hard work we've been pouring into this company, and it is showing up in the results. So we're very pleased with that. So just in the third quarter alone, we delivered the highest quarterly revenue in the company history. The Expedited Freight segment achieved the best revenue, best operating income and best reported EBITDA since the beginning of 2024. The Omni Logistics segment reported the best reported EBITDA margin since the beginning of 2024. The Intermodal segment reported the best revenue in more than 3 years. And finally, we announced a definitive agreement with one of our largest customers to retain a significant portion of the services we provide for the next 2 years. So I'm very, very happy with these results, and you'll continue to see us charting the path forward. So we look forward to updating you on our continued progress next quarter. And as usual, if you have any follow-up questions, please contact Tony. Thank you so much.

Thank you, Mr. Stewart. Again, ladies and gentlemen, this will conclude the Forward Air third quarter earnings conference call. Again, we'd like to thank you all so much for joining us this afternoon, and wish you all a great remainder of your day. Goodbye.