Forward Air(US:FWRD)2024-05-15 20:28Part I: Financial Information Financial Statements (Unaudited) For the first quarter of 2024, Forward Air reported a significant increase in total assets to $3.96 billion, primarily due to the Omni acquisition, which added substantial goodwill and intangible assets. Operating revenue rose 51.5% year-over-year to $541.8 million, driven by the inclusion of Omni's results. However, operating expenses surged 95.7%, leading to a consolidated operating loss of $65.7 million, a stark contrast to the $47.2 million operating income in Q1 2023. The company posted a net loss of $88.8 million, or $(2.81) per share, compared to a net income of $36.4 million, or $1.37 per share, in the prior-year period. The acquisition was financed through significant new debt, increasing long-term debt to $1.66 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total assets | $3,959,260 | $2,979,533 | | Goodwill | $1,379,180 | $278,706 | | Other acquired intangibles, net | $1,264,428 | $134,789 | | Long-term debt, less current portion | $1,664,107 | $0 | | Total shareholders' equity | $1,332,438 | $764,261 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating revenue | $541,813 | $357,709 | | (Loss) income from continuing operations | $(65,732) | $47,196 | | Net (loss) income attributable to Forward Air | $(61,712) | $36,368 | | Net (loss) income per diluted share | $(2.81) | $1.37 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(51,719) | $60,839 | | Net cash used in investing activities | $(1,569,452) | $(61,271) | | Net cash used in financing activities | $(158,726) | $(13,362) | Notes to Condensed Consolidated Financial Statements The notes detail the significant impact of the Omni acquisition on January 25, 2024, which created a new 'Omni Logistics' reportable segment and substantially increased assets, liabilities, and equity. The acquisition involved $100.5 million in cash, plus common and preferred equity, and was financed by new debt totaling over $1.8 billion. Transaction costs of $58.2 million were incurred. The company also divested its Final Mile business in December 2023, which is now reported as a discontinued operation. A shareholder lawsuit related to the Omni acquisition is ongoing - The company now operates through three reportable segments: Expedited Freight, Intermodal, and the newly added Omni Logistics, following the acquisition of Omni Newco, LLC24 - On January 25, 2024, the company completed the acquisition of Omni Newco, LLC for $100.5 million in cash plus significant equity consideration. The preliminary purchase price was valued at approximately $2.31 billion, including the extinguishment of Omni's debt4251 - The company incurred $58.2 million in transaction and integration costs related to the Omni acquisition during Q1 2024, which were recorded in 'Other operating expenses'54 - Goodwill increased from $278.7 million to $1.38 billion due to the Omni acquisition, with the new goodwill of $1.1 billion allocated to the Omni Logistics segment58 - To finance the Omni acquisition, the company took on new debt, including $725 million in 9.5% Senior Secured Notes due 2031 and a $1.125 billion Senior Secured Term Loan Facility. As of March 31, 2024, total long-term debt was $1.68 billion777881 - The company is facing a shareholder lawsuit challenging the determination not to subject the Omni Acquisition to a stockholder vote118 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 51.5% revenue growth in Q1 2024 primarily to the Omni acquisition, which contributed $224.8 million in revenue. This was partially offset by a 36.2% revenue decline in the Intermodal segment due to soft market conditions. The Expedited Freight segment saw a modest 1.4% revenue increase. The consolidated operating loss of $65.7 million was driven by a $28.6 million operating loss from the new Omni segment and $58.2 million in transaction and integration costs. Interest expense surged to $40.8 million from $2.4 million YoY due to acquisition-related debt. The company's liquidity is now supported by a new credit facility, including a $340 million revolver, following the extinguishment of its prior facility - The company's business is susceptible to economic conditions, and the global economic and trade environments remain uncertain with soft demand and excess transportation capacity, which could lead to further rate declines in 2024148151 - The Omni acquisition is the primary driver of financial changes in Q1 2024. For the period from January 25 to March 31, 2024, the Omni Logistics segment generated $224.8 million in revenue and an operating loss of $28.6 million154155 Consolidated Results from Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $541,813 | $357,709 | $184,104 | 51.5% | | Total operating expenses | $607,545 | $310,513 | $297,032 | 95.7% | | (Loss) income from continuing operations | $(65,732) | $47,196 | $(112,928) | (239.3)% | | Net (loss) income attributable to Forward Air | $(61,712) | $36,368 | $(98,080) | (269.7)% | - Other Operations reported a $60.2 million operating loss, primarily due to $58.2 million in transaction and integration costs for the Omni acquisition188 - Net cash used in operating activities was $51.7 million, a significant shift from $60.8 million provided by operations in Q1 2023, mainly due to the net loss and changes in working capital201 Expedited Freight Segment Analysis The Expedited Freight segment's operating revenue grew by 1.4% to $273.3 million in Q1 2024. This was driven by an 8.9% increase in daily tonnage, reflecting higher demand and more dense freight, which offset a 6.1% decline in revenue per hundredweight. However, operating income fell 34.3% to $19.5 million, and the operating margin compressed to 7.1% from 11.0% YoY. The decline in profitability was due to higher operating expenses, including a 11.9% rise in salaries and wages and a 15.5% increase in insurance and claims Expedited Freight Financial Performance (in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $273,295 | $269,577 | 1.4% | | Income from operations | $19,498 | $29,685 | (34.3)% | Expedited Freight Operating Statistics | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Pounds per day (thousands) | 10,703 | 9,829 | 8.9% | | Shipments per day (thousands) | 12.9 | 12.8 | 1.4% | | Revenue per hundredweight | $31.32 | $33.36 | (6.1)% | - The increase in tonnage was driven by a 7.4% increase in weight per shipment and a 1.4% increase in shipments per day, indicating higher demand and denser freight167 Intermodal Segment Analysis The Intermodal segment experienced a significant downturn in Q1 2024 due to challenging market conditions. Operating revenue fell 36.2% to $56.3 million, driven by a 13.5% decrease in drayage shipments and a 27.6% drop in drayage revenue per shipment. Consequently, operating income plummeted 68.0% to $3.6 million, with the operating margin contracting to 6.4% from 12.7% in the prior-year quarter. The company reduced several expense categories, including purchased transportation and operating leases, in response to lower volumes Intermodal Financial Performance (in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $56,292 | $88,169 | (36.2)% | | Income from operations | $3,586 | $11,203 | (68.0)% | Intermodal Operating Statistics | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Drayage shipments | 62,659 | 72,465 | (13.5)% | | Drayage revenue per shipment | $822 | $1,136 | (27.6)% | - The decrease in revenue was attributed to challenged market conditions leading to decreased customer demand, resulting in fewer shipments and lower revenue per shipment179 Quantitative and Qualitative Disclosures About Market Risk The company's market risk has increased following the Omni acquisition. It is now exposed to interest rate risk from its new variable-rate debt; a hypothetical 150 basis point increase in rates would raise quarterly interest expense by approximately $4.0 million. Additionally, the acquisition introduced foreign currency risk, with principal exposures to the Chinese Yuan, Euro, Mexican Peso, Singapore Dollar, and Taiwan Dollar, although most transactions remain denominated in U.S. dollars - The company is exposed to variable interest rate risk on its New Term Loans, which had an outstanding balance of $1.045 billion as of March 31, 2024. A 150 basis point increase in borrowing rates would increase quarterly interest expense by about $4.0 million212 - Through the Omni acquisition, the company is now exposed to foreign currency risk, primarily from the Chinese Yuan, Euro, Mexican Peso, Singapore Dollar, and Taiwan Dollar213 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024. The Omni acquisition represents a material change to the internal control over financial reporting. The company has begun integrating Omni's controls and, as permitted by SEC guidance, plans to exclude Omni's operations from the scope of its internal control assessment for the fiscal year 2024 - The CEO and CFO believe the company's disclosure controls and procedures are effective215 - The Omni acquisition has materially affected internal controls. The company is integrating Omni's controls but will exclude the acquired operations from its 2024 internal control assessment, as permitted by the SEC216 Part II: Other Information Legal Proceedings The company is involved in a shareholder lawsuit filed on September 26, 2023, challenging the company's decision not to hold a shareholder vote on the Omni acquisition. An amended class action complaint seeking damages was proposed on May 2, 2024. The company disagrees with the allegations and intends to defend itself. Other legal matters are considered incidental to business and are not expected to have a material adverse effect - Shareholders filed a complaint on September 26, 2023, alleging they had the right to vote on the Omni acquisition. On May 2, 2024, an amended class action complaint was proposed seeking damages217 - The company disagrees with the allegations in the proposed amended complaint and will defend the matter217 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its equity securities during the three months ended March 31, 2024. This is a change from the same period in 2023, when it repurchased 474,000 shares for $50.5 million - The company did not repurchase any of its equity securities during Q1 2024219 - For comparison, during Q1 2023, the company repurchased 474,000 shares of common stock for approximately $50.5 million207 Other Information During the first quarter of 2024, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the three months ended March 31, 2024222 Exhibits This section lists the exhibits filed with the 10-Q report, including the company's charter, bylaws, new employment and separation agreements, and officer certifications