Forward Air’s Path to Profitability: A Year Post-Acquisition
The newly appointed management team at Forward Air is diligently navigating the challenges of achieving profitability following the contentious acquisition of Omni Logistics, which was finalized just over a year ago. Despite a challenging demand environment in the fourth quarter, Forward Air highlighted several key achievements during a recent conference call with analysts.
For the fourth quarter, Forward Air (NASDAQ: FWRD) reported a net loss from continuing operations of $35.4 million, translating to a loss of $1.23 per share. This outcome was notably worse than analysts’ consensus estimate, which anticipated a loss of 12 cents per share. However, the precise expectations built into this figure remain somewhat ambiguous. On a broader scale, the company’s full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $308 million, aligning with the upper limits of management’s guidance.
As the fiscal year concluded, Forward Air reported liquidity of $382 million, a decrease from $460 million in the previous quarter. Nevertheless, the company has established a more stable debt structure following a recent amendment to its credit facility. The revolving credit facility has been reduced by $40 million to a total of $300 million, but this adjustment has provided greater flexibility regarding debt covenants—allowing for a net debt leverage ratio of 6.75 times compared to the 4.5 times previously required later this year.
At the end of the fourth quarter, Forward Air’s net leverage ratio stood at 5.5 times, a slight increase from 5.4 times in the third quarter. Importantly, the company now has a $59 million buffer against the new covenant requirements, which do not mandate compliance with the 5.5 times threshold until the fourth quarter of 2026.
Operational cash flow experienced a significant reduction, nearly halving to $42 million during this period. However, Forward Air contended with substantial debt service obligations and professional fees, which are not expected to burden the company going forward. Notably, Forward generated $20 million in positive cash flow during the latter half of 2024, a stark contrast to the $97 million cash burn observed in the first half of the year.
Looking ahead, Forward Air faces no long-term debt maturities until the end of 2030, providing some breathing room for the company’s financial strategy. CFO Jamie Pierson remarked during the call, “While we could have performed better financially in the fourth quarter, we absolutely excelled in implementing transformational changes that will establish a foundation for stability in 2025 and growth beyond.”
Pierson also indicated that the company anticipates annual interest payments of $170 million moving forward. However, he noted that achieving free cash flow positivity is feasible when excluding the burdens associated with previous deal costs. Furthermore, he announced that Forward Air has surpassed its initial target of $75 million in annualized integration synergies, achieving over $100 million in cost savings through workforce reductions, downsizing terminal operations, and decreasing reliance on third-party providers. The integration of the network with Omni Logistics is slated for completion by the end of the first quarter.
Performance Metrics and Market Strategy
In terms of operational performance, Forward’s expedited segment, which encompasses less-than-truckload operations, reported a 5% year-over-year decline in revenue, totaling $266 million. Daily tonnage experienced a 4% year-over-year drop, with shipments decreasing by 9%, although this was partially mitigated by a 5% increase in weight per shipment. Revenue per shipment fell by 1% year-over-year, though it was up 4% when excluding fuel costs. The operating margin for this segment was reported at 2.7%, a decline of 690 basis points compared to the previous year.
The current leadership is actively reversing a previous strategy that prioritized volume growth over profitability. The team is focusing on increasing shipment weights and is implementing corrective pricing measures expected to be fully operational by the end of February. Revenue per hundredweight, or yield, was down 6% year-over-year in the quarter (1% decline when excluding fuel impacts), but management anticipates a positive inflection in yields by the second quarter.
Addressing concerns regarding competitors and customers attempting to replicate Forward’s airport-to-airport network, CEO Shawn Stewart stated, “Not much has changed. Our legacy freight forwarder customers are entrepreneurs. Where they can build density lanes, they will continue to do so.” He noted that the revenue decline in the expedited business is correlated with reduced volumes among many of Forward’s legacy customers.
Pierson asserted that Forward operates a superior network with better service than its competitors, which he believes presents a significant margin opportunity. In contrast, Omni Logistics reported $326 million in revenue, reflecting a 3% decline from the previous quarter, with an annual revenue total of $1.2 billion in 2024, down from a $1.64 billion run rate prior to the acquisition announcement.
Forward Air has not provided any updates regarding its strategic review process, which may involve a potential sale of the company or a merger with another entity. Following the conference call, shares of FWRD saw a 4.9% increase in after-hours trading, recovering slightly after a decline of 6.1% during the regular trading session. Overall, shares have plunged approximately 77% since the announcement of the merger with Omni Logistics.
For further insights and updates related to Forward Air and the logistics industry, stay tuned for more articles from FreightWaves.
