Forward Air Books Big Loss in Post-Merger Q1; Stock Drops 30% Premarket

Shares of Forward Air FWRD plunged 30% in pre-market trading Thursday following a rough first-quarter report that was issued five hours after Wednesday's market close.

Forward reported a headline net loss of $88.8 million, or $2.35 per share. Excluding one-off costs from the acquisition and integration of Omni Logistics as well as severance expenses tied to changes in leadership, the company reported an adjusted net loss of 64 cents per share. That compared to consensus estimates ranging from an adjusted net loss of 15 to 11 cents per share and the year-ago adjusted EPS result of $1.27.

"I am committed to aggressively taking action to improve profitability, maximize synergy capture and drive our leadership in global supply chain and domestic transportation services" said CEO Shawn Stewart. "With the distractions of the deal closing behind us, our team is focused on execution."

Stewart took over in late April, nearly three months after the ouster of Tom Schmitt, who orchestrated the controversial merger of Omni Logistics. Stewart previously held various leadership roles at Ceva Logistics.

He said the company plans to share a full-year outlook in conjunction with its second-quarter call.

Consolidated revenue of $542 million was 52% higher year over year (y/y). The increase was attributable to the Jan. 25 addition of Omni Logistics. In the truncated first quarter, Omni generated $225 million in revenue with an operating loss of $28.6 million. For the full three-month period, Omni generated $307 million in revenue with an adjusted earnings before interest, taxes, depreciation and amortization loss of $9 million.

Omni is a freight forwarder providing end-to-end supply chain services.

Forward's legacy operations also reported a deterioration in operating results.

The expedited segment, which includes less-than-truckload operations, reported a 1% y/y increase in revenue to $273 million. Shipments per day increased by a similar percentage and weight per shipment moved 7% higher. The combination produced a 9% increase in tonnage, which was partially offset by a 6% decline in revenue per hundredweight, or yield.

The yield calculation was negatively impacted by the higher shipment weights. Revenue per shipment (excluding fuel surcharges) was 1% higher y/y and 2% higher than the fourth quarter.

Less-than-truckload shipments increased 4% y/y in April, and revenue per shipment excluding fuel was 2% higher.

The unit posted a 7.1% operating margin, 390 basis points worse y/y and 250 bps worse than the fourth quarter. Salaries, wages and benefits (as a percentage of revenue) jumped 220 bps y/y, and depreciation and amortization expenses increased 90 bps.

Intermodal revenue fell 36% y/y to $56 million. Shipments were down 14% and revenue per shipment dropped 28%. A 6.4% operating margin in the period was half the margin the unit posted in the year-ago quarter.

"Our first quarter results did not meet our expectations" said Chief Financial Officer Rebecca Garbrick. "We continue to face challenging market conditions, characterized by weak freight demand, excess carrier capacity, and pressure on pricing. Omni's first quarter results were more adversely impacted as a result of its exposure to the international freight market."

Table: Forward's key performance indicators

On a Thursday call with analysts, management said the first-quarter numbers don't reflect the likely outcome of the full year. It noted the first quarter is seasonally the weakest of the year and that it saw positive sequential revenue trends in April. It also said the noise and delays of the litigated merger were a distraction.

"I think it's really unrealistic to think that the ups and downs of the months leading to closing aren't reflected in our Q1 performance" Stewart said.

The company said consolidated revenue was up 6% from March to April versus a 15% sequential decline in the same period last year. Management said all units reported sequential increases in April.

Forward reported adjusted EBITDA of $29.4 million in the quarter, a 51% y/y decline, and said it expects sequential increases in EBITDA "until synergies are fully realized by the end of 2025."

It is in the process of consolidating linehaul operations and terminal locations. It's also insourcing pickup and delivery in some markets. It has already achieved an annualized run rate of $55.4 million in cost synergies, recording $7.5 million of actual savings in the first quarter. It expects a total of $73.4 million in total cost savings from the integration by the end of 2025, with $47 million in actual savings being recorded this year.

The combined entity produced $2.7 billion in revenue last year with adjusted EBITDA of $270 million ($67 million at Omni).

Forward closed the quarter with $1.77 billion in debt, $172 million in cash and $340 million available on an undrawn revolving credit facility. Net debt-to-adjusted EBITDA was 5.5 times on a 12-month trailing calculation when using the formula stipulated by debt covenants.

Management didn't commit to being cash flow-positive during the second quarter but said it expects to remain under the 6 times debt leverage covenant for the period. The company expects to deleverage to 4.5 times by the end of 2025.

It repaid $80 million in debt during the first quarter. Forward previously suspended dividends and share repurchases, and is looking to divest noncore assets like it did with its final-mile segment late last year.

Shares of FWRD rallied from the market open but were still down 19% at 11:09 a.m. EDT on Thursday compared to the S&P 500, which was up 0.4%.

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