Forward Air(FWRD) - 2024 Q4 - Annual Report

Part I Item 1. Business Forward Air is an asset-light transportation provider with three segments, expanding globally through the 2024 Omni acquisition and initiating a strategic review in 2025 - The company operates through three reportable segments: Expedited Freight (44% of 2024 revenue), Omni Logistics (47% of 2024 revenue), and Intermodal (9% of 2024 revenue)[29][30][31] - On January 25, 2024, the company completed the acquisition of Omni Newco LLC ("Omni"), a key strategic move to expand operations domestically and internationally[27][34] - In January 2025, the Board of Directors initiated a comprehensive review of strategic alternatives, which could include a potential sale, merger, or other strategic transaction[32] Operations by Segment Operations cover Expedited Freight LTL, Omni Logistics global solutions, and Intermodal drayage, each with distinct service models Expedited Freight LTL Network - Average Weekly Volume | Year | Average Weekly Volume in Pounds (In millions) | | :--- | :--- | | 2022 | 54.8 | | 2023 | 52.7 | | 2024 | 54.3 | - In 2024, Expedited Freight's ten largest customers accounted for approximately 27% of its revenue, with no single customer exceeding 10%[50] - In 2024, Omni Logistics' ten largest customers accounted for approximately 41% of its revenue, with the top two customers representing 14% and 13% respectively[55] - The Intermodal segment's transportation capacity in 2024 was sourced from Leased Capacity Providers (62.1%), Company-employed drivers (33.5%), and third-party motor carriers (4.4%)[60] Workforce and Sustainability The company employs 6,319 full-time staff, none unionized, and pursues an ESG strategy focused on people, customers, and environment - As of December 31, 2024, the company employed 6,319 full-time and 267 part-time employees, none of whom were covered by a collective bargaining agreement[71] - The company has established a preliminary goal to reduce absolute Scope 1 and Scope 2 GHG emissions by 2030 from a 2021 base year and is updating its ESG roadmap to align with the newly combined operations with Omni Logistics[96] - The company supports veteran-related causes through its charitable organization, Operation: Forward Freedom, raising $350,000 for Hope for the Warriors in 2024[89] Risk Management and Regulation Risk management involves self-insurance for liabilities and compliance with extensive U.S. and international transportation regulations Vehicle Liability Insurance Risk Retention (Policy Term 10/1/2024 to 10/1/2025) | Business/Layer | Risk Retention | Frequency | Layer | | :--- | :--- | :--- | :--- | | LTL business | $5,000 (in thousands) | Occurrence/Accident | $0 to $5,000 | | Truckload business | $5,000 (in thousands) | Occurrence/Accident | $0 to $5,000 | | Intermodal | $1,000 (in thousands) | Occurrence/Accident | $0 to $1,000 | | LTL, Truckload and Intermodal | $5,000 (in thousands) | Policy Term Aggregate | $5,000 to $10,000 | - The company maintains workers' compensation insurance with a self-insured retention of $500,000 per occurrence[101] - The business is regulated by various U.S. agencies, including the DOT, FMCSA, EPA, and OSHA, and is subject to international laws such as the Foreign Corrupt Practices Act (FCPA) for its global operations[103][106] Item 1A. Risk Factors The company faces diverse risks including economic sensitivity, Omni acquisition integration, substantial debt, cybersecurity threats, and regulatory compliance Risks Relating to Our Business and Operations Operational risks include economic sensitivity, fuel price volatility, competition, capacity retention, customer concentration, and strategic review uncertainty - The business is sensitive to economic conditions that impact freight volumes, pricing, and customer solvency, with profitability vulnerable to volume declines due to a significant portion of fixed costs[112][113][127] - The top ten customers accounted for approximately 24% of revenue in 2024, creating a concentration risk[135] - The Board initiated a review of strategic alternatives in January 2025, creating uncertainty that could affect the business, personnel, and customer retention[133] Risks Relating to Omni Acquisition Omni acquisition risks include integration failure, high costs, Up-C structure complexities, and a material weakness in internal financial controls - The company may not realize the anticipated benefits and synergies from the Omni Acquisition due to integration challenges, potential loss of customers or key employees, and unexpected costs[117][118] - A material weakness in internal control over financial reporting was identified related to the accounting for the Omni business combination, its related income taxes, and the impairment process[168] - The company is obligated to pay Omni Holders 83.5% of certain tax savings it may realize under a Tax Receivable Agreement, and these payments are expected to be substantial[174] Risks Relating to our Indebtedness Significant post-Omni acquisition debt, including $725 million in notes and $1.045 billion in term loans, increases financial vulnerability and limits flexibility - In connection with the Omni Acquisition, the company's debt consists of $725 million in senior secured notes and $1,045 million in senior secured term loans[176] - The substantial debt could increase vulnerability to adverse economic conditions, limit flexibility, and require significant cash flow for payments, reducing availability for other business needs[177][181] Risks Relating to Regulatory Environment Regulatory risks include potential reclassification of independent contractors, significant self-insured liabilities, and compliance with extensive domestic and international laws - A determination by regulators that Leased Capacity Providers are employees rather than independent contractors, under rules like California's AB5, could expose the company to significant liabilities and increased ongoing expenses[192][193] - The company self-insures a significant portion of its claims exposure for vehicle liability, workers' compensation, and cargo loss, making earnings volatile and subject to rising insurance costs[198][199] - The FMCSA's Compliance, Safety, Accountability (CSA) program could adversely impact the ability to hire qualified drivers or contract with carriers if safety scores are poor, potentially harming customer relationships and growth[205] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - None[216] Item 1C. Cybersecurity The company maintains a comprehensive cybersecurity program with Board oversight, CISO-led management, and a focus on technical safeguards and incident response - The Board of Directors has ultimate oversight for cybersecurity, delegating monitoring responsibility to the Audit Committee, with Casey O'Malley serving as the Chief Information Security Officer (CISO)[222] - The cybersecurity program includes technical safeguards (firewalls, encryption, MFA), a dedicated Incident Response Team, third-party risk management, and regular employee training[219] - Cyber incidents are evaluated for materiality based on financial impact, reputational damage, regulatory compliance concerns, and operational disruption to determine appropriate disclosure[221] Item 2. Properties The company's headquarters are in Greenville, TN, with 259 properties, 6 owned and 253 leased, deemed adequate for current operations Principal Facilities as of December 31, 2024 | Location | Segment | Approximate Square Feet | | :--- | :--- | :--- | | Atlanta, GA | Expedited Freight | 152,000 | | Chicago, IL | Expedited Freight | 125,000 | | Dallas, TX | Expedited Freight | 223,000 | | Euless, TX | Omni Logistics | 367,000 | | Los Angeles, CA | Expedited Freight | 300,000 | | Pico Rivera, CA | Omni Logistics | 203,000 | | South Brunswick, NJ | Omni Logistics | 294,000 | | Taipei, Taiwan | Omni Logistics | 432,000 | | Hong Kong, China | Omni Logistics | 360,000 | Item 3. Legal Proceedings The company is defending a shareholder lawsuit challenging the lack of a shareholder vote on the Omni Acquisition and alleging fiduciary duty breaches - A shareholder complaint filed in September 2023, and subsequently amended, challenges the company's and directors' determination not to subject the Omni Acquisition to a shareholder vote, alleging violations of Tennessee corporate law and breaches of fiduciary duty[225] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[226] Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Forward Air's common stock trades on Nasdaq, with no dividends paid in FY2024 or anticipated, and no share repurchases in Q4 2024 - The company did not declare or pay any cash dividends on its Common Stock during fiscal year 2024 and does not anticipate paying any in the foreseeable future[229] - The company did not repurchase any of its equity securities during the three months ended December 31, 2024[231] Cumulative Shareholder Return Comparison (2019-2024) | Year | Forward Air Corporation | Nasdaq Trucking and Transportation Stocks Index | Nasdaq Global Select Stock Market Index | | :--- | :--- | :--- | :--- | | 2019 | $100 | $100 | $100 | | 2020 | $110 | $100 | $137 | | 2021 | $173 | $121 | $169 | | 2022 | $150 | $97 | $114 | | 2023 | $90 | $120 | $165 | | 2024 | $46 | $127 | $213 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FY2024 results show revenue growth to $2.47 billion driven by Omni, but a $1.12 billion net loss due to a $1.03 billion goodwill impairment and increased expenses Results of Operations (FY 2024 vs FY 2023) FY2024 consolidated operating revenue increased 80.5% to $2.47 billion, but a $1.03 billion goodwill impairment led to a $1.06 billion loss from continuing operations Consolidated Results of Operations (in thousands) | Metric | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue | $2,474,262 | $1,370,735 | 80.5% | | Total operating expenses | $3,537,198 | $1,282,525 | 175.8% | | Impairment of goodwill | $1,028,397 | $0 | N/A | | Income (loss) from continuing operations | ($1,062,936) | $88,210 | (1,305.0)% | | Net (loss) income attributable to Forward Air | ($816,969) | $167,351 | (588.2)% | - The increase in operating revenue was primarily due to the inclusion of $1,196,841 from the newly acquired Omni Logistics segment[265] - The increase in operating expenses was primarily due to $2,241,644 in expenses from the Omni segment, which includes a goodwill impairment charge of $1,028,397[266] Segment Performance Expedited Freight operating income declined 41.4%, Intermodal income fell 25.3%, and Omni Logistics reported a $1.04 billion operating loss primarily due to goodwill impairment Expedited Freight Segment Performance (in thousands) | Metric | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenue | $1,115,163 | $1,096,958 | 1.7% | | Income from operations | $67,951 | $116,040 | (41.4)% | Intermodal Segment Performance (in thousands) | Metric | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Operating revenue | $232,832 | $274,043 | (15.0)% | | Income from operations | $18,925 | $25,327 | (25.3)% | | Drayage shipments | 254,072 | 274,997 | (7.6)% | - The Omni Logistics segment reported an operating loss of $1,044.8 million for the period from January 25, 2024, to December 31, 2024, which included a goodwill impairment charge of $1,028.4 million[263][267] Liquidity and Capital Resources Liquidity is supported by operations and credit, but the Omni acquisition added $1.68 billion in debt, leading to $69.0 million cash used in operations in FY2024 Summary of Cash Flows (in thousands) | Cash Flow Activity (Continuing Operations) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($69,015) | $199,212 | | Net cash used in investing activities | ($1,608,586) | ($83,687) | | Net cash (used in) provided by financing activities | ($163,832) | $1,790,726 | - To finance the Omni Acquisition, the company incurred significant indebtedness, including $725 million in 9.5% senior secured notes due 2031 and a $1.125 billion senior secured term loan facility (subsequently reduced)[313][315] - The company entered into a Tax Receivable Agreement (TRA) obligating it to pay certain former Omni holders 83.5% of specific tax benefits realized, which could be substantial future payments[321] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment for self-insurance reserves, business combinations, and the complex Tax Receivable Agreement liability - A goodwill impairment charge of $1,028.4 million was recorded for the Omni reporting unit in 2024, primarily due to a decrease in the company's market value and uncertainty following the acquisition[304] - As of December 31, 2024, self-insurance loss reserves were $65.1 million, determined through an estimation process involving actuarial analysis and significant judgments[298][300] - The company recorded a Tax Receivable Agreement (TRA) liability of $13.3 million as of December 31, 2024, but no additional TRA liability was recorded for benefits generated in 2024 due to a valuation allowance against related deferred tax assets, as future taxable income is not considered probable[308][537] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate fluctuations on the Revolving Credit Facility and fuel price volatility, mitigated by a surcharge program - The company's main market risks are changes in interest rates and fuel prices[327] - A hypothetical 150 basis point increase in the Revolving Credit Facility borrowing rate would increase annual interest expense by approximately $1,627 thousand[327] Item 8. Financial Statements and Supplementary Data This item presents the company's audited consolidated financial statements and supplementary data as a separate section of the Form 10-K Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[330] Item 9A. Controls and Procedures Disclosure controls were ineffective as of December 31, 2024, due to a material weakness in internal controls related to Omni acquisition accounting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024[331] - A material weakness was identified in internal controls over financial reporting due to complexities in accounting for the Omni acquisition, specifically related to the business combination, income taxes, and the impairment process[338][345] - The company's remediation plan includes enhancing the finance team's skill set, engaging qualified external experts for complex matters, and implementing more timely and enhanced review procedures[340] - The independent registered public accounting firm, Ernst & Young LLP, issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2024[344][382] Item 9B. Other Information No director or officer adopted or terminated Rule 10b5-1 trading agreements during the fourth quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading agreement during the quarter ended December 31, 2024[355] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information on security ownership is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including audited consolidated financial statements and notes Financial Statements Audited FY2024 financial statements show total assets of $2.80 billion, a $1.13 billion net loss due to goodwill impairment, and $1.68 billion in long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $472,500 | $347,020 | | Goodwill | $522,712 | $278,706 | | Other acquired intangibles, net | $999,216 | $134,781 | | Total assets | $2,802,641 | $2,979,533 | | Total current liabilities | $384,046 | $237,097 | | Long-term debt, less current portion | $1,675,930 | $0 | | Total liabilities | $2,516,773 | $2,215,268 | | Total shareholders' equity | $285,868 | $764,265 | Consolidated Statement of Comprehensive (Loss) Income (in thousands) | Account | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Operating revenue | $2,474,262 | $1,370,735 | $1,679,634 | | Income (loss) from continuing operations | ($1,062,936) | $88,210 | $247,591 | | Net (loss) income | ($1,131,228) | $167,351 | $193,191 | | Net (loss) income attributable to Forward Air | ($816,969) | $167,351 | $193,191 | | Diluted net (loss) income per share | ($30.63) | $6.40 | $7.14 | Notes to Financial Statements Notes detail the Omni acquisition's $2.27 billion purchase price and $1.03 billion goodwill impairment, new debt structure, and income tax provisions - The Omni acquisition was completed on Jan 25, 2024, for a total purchase price of $2.27 billion, consisting of cash, stock, and liabilities assumed under the Tax Receivable Agreement, initially adding $1.27 billion to goodwill[469][479] - A goodwill impairment charge of $1,028.4 million related to the Omni reporting unit was recorded in 2024[432][434] - As of Dec 31, 2024, the company had $1.68 billion in long-term debt, consisting of a $1.045 billion term loan and $725 million in senior secured notes, incurred to finance the Omni acquisition[485] - A valuation allowance of $72.5 million was recorded against deferred tax assets as of Dec 31, 2024, as it was determined more likely than not that some portion of these assets will not be realized[532]