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Forward Air Talks Omni Integration, Silent on Rumors It’s for Sale

Umito November 5, 2024

Forward Air management said the company remains focused on integrating Omni Logistics and developing a marketing strategy that includes its legacy less-than-truckload expedited services with its acquisition of an air and sea freight transport activity. During opening comments on a call Monday evening, management told analysts it would not comment on “rumors or speculation” that the business was for sale following its public merger with Omni.

When the deal was announced in August 2023, some shareholders were upset at being excluded from the voting process and tried to block the transaction in court. Since the January closing, which added significant debt to Forward’s balance sheet, activists have called on Forward’s board to explore strategic alternatives, including a sale of the company. The group hopes private ownership can improve Forward’s balance sheet and allow the company to formulate a marketing strategy free from public scrutiny.

Before (NASDAQ:FWRD) reported a net loss of $2.62 per share for the third quarter. However, the result includes a depreciation of goodwill because the acquired assets no longer benefit from the premium paid for them. Other transaction-related expenses were also included.

Adjusted earnings before interest, taxes, depreciation and amortization of $77 million was $4.3 million lower than the second quarter, prompting the company to reduce its full-year adjusted EBITDA guidance. year 2024 from $300 million to $310 million (from $310 million to $325 million). .

Management said the initiative to realize about $75 million in deal synergies by the first quarter of next year was slightly ahead of plan.

The company pointed to lower pricing for LTL shipments by class as the primary reason for this unfavorable outcome. She said the company’s previous strategy “focused more on volume than profitability,” leaving many of its shipments undervalued compared to the service provided to move them.

This strategy was implemented before the new regime has taken over.

Table: Forward key performance indicators

The expedited segment, which includes LTL operations, reported revenue of $285 million, up 2.1% year over year. Tonnage per day increased by 2.4%, but revenue per hundredweight, or yield, decreased by 0.5% excluding fuel surcharges (1.2% less than in the second quarter). Forward said it would continue to offer class-based LTL services, but not at the unfavorable yields previously permitted.

The unit recorded an operating margin of 6.8%, down 490 basis points year-on-year. Most cost buckets increased as a percentage of revenue, with purchased freight 260 basis points higher year-over-year.

Omni reported revenue of $335 million, an increase of 7.3% from the second quarter. (Prior year results were not provided.) Omni generated $871 million in revenue during the first three quarters of the year, just over half of the revenue generated during announcement of the merger.

Forward improved its liquidity position by $15 million to $460 million with operating cash flow of $53 million, compared to a loss of $45 million in the second quarter.

Net debt was reduced sequentially by $54 million to $1.65 billion, or 5.4 times adjusted EBITDA. The leverage ratio increased 5.2 times in the second quarter, but remained below the company’s 6 times debt covenant. EBITDA of $307 million over the trailing 12 months gives the company a cushion of $32 million under its credit agreement.

Management said a new commercial director would join Forward in January. The anonymous person has over 20 years of service in the global logistics industry.

FWRD shares were down 5.1% after hours Monday.

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