Forward Air Corporation (FWRD) Earnings Call Transcript & Summary

Welcome to Forward Air's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Tony Carreno, Senior Vice President of Treasury and Investor Relations.

Thank you, operator, and good afternoon, everyone. Welcome to Forward Air's Second Quarter Earnings Conference Call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer; and Jamie Pierson, Chief Financial Officer. By now, you should have received a press release announcing Forward Air's second quarter 2026 results which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining second quarter 2026 earnings highlights and a business update. Both the press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air's website at forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call may be considered forward-looking statements. This include statements which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts, include these statements regarding our fiscal year 2026. These statements are not a guarantee of future performance and are subject to known and unknown risks. Uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call [indiscernible] on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. During the call, there may also be a discussion of financial metrics that do not conform to U.S. Generally Accepted Accounting Principles or GAAP. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation. I will now turn the call over to Shawn.

Good afternoon, everyone, and thank you for joining us. I would like to begin by saying how excited I continue to be about Forward Air and the opportunity ahead as we continue building and growing this global enterprise. While we have more work to do, as you'll hear from us today, we are beginning to see the fruits of our labor and results at the level I know we are capable of producing. Before I get into our results, I want to recognize the people who make our business possible. First, to our customers, thank you for your continued trust and partnership. We appreciate the confidence you place in Forward Air and are grateful for the opportunity to earn your business every day. To our employees, thank you for your commitment, professionalism and relentless focus on serving our customers. Every day, you demonstrate the dedication and service excellence that differentiate Forward Air and reinforce our reputation as a trusted logistics partner. Finally, to our shareholders continued confidence and support. We value the trust you placed in our leadership team and remain committed to creating long-term value through disciplined execution and consistent performance. And finally, to everyone I just referenced, since the transaction 2.5 years ago, you patiently stood by us and supported us as we combine 2 great legacy companies. And with the stabilization and integration phases behind us, we are poised for continued excellent customer service and supporting the growth of our business more than ever. Because of your continued support we are arguably in the best financial position since taking office and from our leadership team to you, thank you. Now to the main topics I would like to cover on today's call. First, I will provide some comments on the quarterly results. Second, I will provide an update on the sale of our non-core assets. And third, I will provide some comments on the retention of one of our largest customers. With that, let's begin with the second quarter results. For the quarter, we reported the best operating revenue in the company history, and we also reported the best consolidated EBITDA result in 2.5 years. Operating revenue was $673 million compared to the $619 million in the second quarter of 2025 and a consolidated EBITDA, which is calculated pursuant to our credit agreement, improved to $93 million compared to $79 million a year ago. The strong performance was led by the Expedited Freight segment, which reported its best operating revenue, best operating income, best reported EBITDA and best margin since the beginning of 2024. The Omni Logistics segment saw an increase in demand for its contract logistics, and air and ocean services and excluding the impact of goodwill impairment, achieved its best reported EBITDA and margin since the transaction in early 2024. The Intermodal segment bounced back and had its best reported EBITDA result in 5 quarters and best margin in 6 quarters attributable to a strong pipeline and recently enacted strategic rate increases to several underperforming accounts. These results reflect our team's dedication to meeting customers' expectations combined with positive momentum in the freight market and a tailwind from higher diesel prices. Market fundamentals are improving as capacity continues to tighten, driven by regulatory enforcement and carrier exits. At this time, macro leading demand indicators are becoming more constructive, including 7 consecutive months of manufacturing PMI expansion, lean inventory levels as indicated by the sales to inventory ratio that could support a future restocking cycle and increasing Truckload spot rate and tender rejection rates. We believe these trends point toward a continual gradual freight recovery. Although some macroeconomic uncertainties remain, particularly from the geopolitical tensions and diesel price volatility, which could weigh on industrial activity and delayed demand recovery. As everyone knows, recoveries are rarely if ever linear in nature, but we remain committed to executing our transformation and growth strategy through disciplined cost management and exceptional customer service. With the fundamentals addressed, let's turn to the second topic, an update on the sale of our non-core assets. As you may recall, on our first quarter earnings call, we announced our intention to sell 2 in the legacy Omni segment. During the second quarter, we completed the disposition of the first business. And in July, we closed on the disposition of the second business. We are pleased to have successfully completed both of these transactions as part of our portfolio optimization. While not material, this does simplify our portfolio of services, allowing us to focus on the core of our future and have the added benefit of monetizing underperforming assets. The remaining targeted divestiture that we announced is the Intermodal business. The good news is the business is performing very well and is reporting its highest margin in recent history. I believe that the management team that runs this business is one of the best in the space and is committed to not only continuing to service customers but continue to properly grow the base. The sales process is progressing as planned and remains on schedule with an expected closing date by the end of the year. As previously communicated, the sale of these non-core assets is expected to advance efforts to delever the balance sheet, streamline the organization and enhance shareholder value. Finally, as you saw a few weeks ago, we provided an important update on the customer retention. As we previously disclosed in May, we have been engaged in discussions with one of our largest customers regarding its planned transition of a portion of their services currently provided by Omni to other service providers. As we have discussed before, this change is a function of the customers' operational and supplier diversification initiatives and has nothing to do with the exceptional service we provide during our 20-year relationship. When we disclose the potential transition, we were adamant that we are going to do everything we could to retain as much of the business as possible. And with the recent signing of the Memorandum of Understanding, or MOU, we are off to a great start. Under the MOU, we expect to retain at least half of the approximately $250 million of revenue attributable to the customer for the fiscal year ending December 31, 2025, with the potential of retaining an additional approximate 25%. In addition to the MOU contemplates an extension of the term of the contract for the retained services for a period of no less than 2 years. For the services that are expected to be transitioned to other providers, that is anticipated to start later this year with the majority taking place in December 2026 and throughout the balance of 2027. We are extremely pleased with the productive conversations we have had with the customer including the prospect of retaining up to 75% of the 2025 business levels and meaningfully extending the contract term. Please keep in mind that the customer has continued to grow with us throughout 2026. With that, I will now turn the call over to Jamie to go through the detailed results from the second quarter.

Thank you, Shawn, and good afternoon, everyone. As you heard from Shawn, we reported a consolidated EBITDA of $93 million in the second quarter compared to $79 million in the second quarter of 2025, and a [ full ] percentage point improvement in margin. On an LTM basis, consolidated EBITDA was $319 million as of the end of the second quarter. Referring to Page 30 of the presentation, on an adjusted EBITDA basis, the second quarter results improved by $18 million to $92 million compared to $74 million in the second quarter last year which speaks to the continued improvement in the quality of our earnings. Turning to operating income or loss. In the second quarter, we incurred a goodwill impairment charge of $244 million related to the Omni Logistics segment that negatively impacted the quarter. I hope, but according to accounting guidelines, required goodwill to be evaluated no less than on an annual basis. And on an interim basis, when events or circumstances indicate fair value of a reporting unit may be below its carrying value. In this case, the Omni Logistics segment impairment charge was based on the uncertainty around potential revenue decreases with the customer that we have discussed at length that existed at the time we performed our required analysis. And before we signed the MOU in July. It's important to note that the impairment is a noncash charge and does not impact EBITDA, cash or liquidity in any way whatsoever. With that accounting lesson out of the way, we reported an operating loss in the second quarter of $201 million. Excluding the impairment, operating income would have been $43 million, which is more in line with our fundamental performance and more than double the $20 million of operating income reported in the second quarter of last year. Turning to the segments. Expedited Freight reported EBITDA improved by over 40% from $30 million to $43 million and margin improved by 200 basis points from 11.6% in the second quarter of last year to 13.6% this year. On a year-over-year basis, we saw increases in key stack, including tonnage per day number of shipments per day, weight per shipment and revenue per shipment excluding fuel. Revenue per hundredweight excluding fuel, on the other hand, decreased but only because weight per shipment increased so much, which speaks directly to our strategy for improved freight characteristics and network density, which in turn manifests itself in the higher quarter-over-quarter margin. At the Omni Logistics segment due to the goodwill impairment charge, reported EBITDA was a loss of $206 million. Excluding the impairment, reported EBITDA was $38 million with an 11.2% margin which are the best results this segment has reported in the past 2.5 years. At this same time last year, reported EBITDA was $30 million with a 9% margin. At the Intermodal segment, as previously noted, we are beginning to see the benefit of management actions to return the business to its previous approximate $10 million per quarter run rate. Reported EBITDA of $10 million was the best in 5 quarters and an improvement over the $9 million reported in the second quarter of 2025 and a substantial improvement over the previous sequential quarter. The 16.7% margin this quarter was the best result in 6 quarters and a 160 basis point improvement compared to the 15.1% a year ago. Turning to cash flow. Cash and liquidity, we reported $5 million in cash used by operating activities in the second quarter, which is an $8 million improvement compared to the $13 million used by operating activities a year ago. And for the first half of 2026, we reported $41 million of cash provided by operating activities, which is a $14 million improvement compared to the $27 million in the same period a year ago. As for liquidity, we ended the second quarter with $401 million, which is almost exactly where we ended the first quarter. Keeping liquidity flat sequentially is significant because we make a $34 million [indiscernible] annual interest payment on our senior secured notes in the second quarter that we did not make in the first quarter. The $401 million of liquidity is comprised of $139 million in cash, $261 million in availability under the revolver and on a percentage of [ LTM ] revenue as a percent of total assets put up in the upper echelon of the competitive set. And [indiscernible] who not disappoint, I would like to leave you with a few parting thoughts. The first of which, and I have to say it because it doesn't happen that often is this is our best quarter since the transaction. And it is a testament to our discipline in the space of [ MS merger ] and less than cooperative broader economic backdrop. Secondarily is the execution and monetization of a couple of small non-core assets. We completed the sale of the 2 legacy Omni businesses within the targeted time frame for a combined sales price of approximately $27 million. As a reminder, unrestricted domestic cash and cash equivalents on the balance sheet is an offset to outstanding long-term debt when calculating our [indiscernible] net leverage covenant. And as mentioned by Shawn, the Intermodal business is performing well and the sale remains on schedule and is progressing as planned. Point three is the dramatically improved earnings quality of this company over the past 2 years and our ability to translate operating improvements to cash and liquidity. We but ultimately is the progress we made with our major customer procuring as much business as we did while continuing to negotiate additional retention as they continue their own robust year-over-year organic growth. Finally, as a result of the previous 4 points, my confidence in the resiliency of our operating model, combined with disciplined cost management and leading economic indicators remains resolute. The sometimes thankless foundational work over the past 2 years plus that allowed us to deliver $93 million in EBITDA has been done. As the fundamentals in the freight market continue to improve and as long as diesel remains at current levels, I feel like we are at a tipping point of our internal operating leverage as each additional shipment should disproportionately translate to the bottom line. I will now turn the call over to the operator to take questions. Operator?

[Operator Instructions] Our first question is coming from Bruce Chan with Stifel.

It's certainly good to see all the progress here. A lot to talk about. So maybe just want to start with the reported yield numbers. You talked about the mix impact in network, Jamie, which I think makes a lot of sense, but maybe you can give us a sense of what core pricing or renewals look like there. And just generally how you're feeling about the pricing opportunity that's left and what the competitive environment looks like?

Yes. So I'll start, and I'll let Shawn that clean up. Yes. So on the yield side, it was a strategic decision, Bruce, very intentional. So we lowered yield on some higher weight break shipments, and you'll see that come through when you guys have time to go through the staff. I weight per shipment is through the roof. So just on the weight of it, yield on a revenue per hundredweight basis is going to be mathematically lower. Adversity revenue per shipment ex-fuel is also -- the [indiscernible] is up. So less concerned about the revenue per hundredweight more concerned about the revenue per shipment that we ship. And I'd say that the [indiscernible] paying off right now, load factors up, empty malls are down and profitability is up by a couple of hundred basis points. .

The other thing I would add to that, Bruce, is our length of haul is up. So as we look to take on this additional tonnage coming back into LTL with our what that tonnage coming in plus adding some more lane pairs. That strategic change in the wait breaks, you can look at certain KPIs, and I don't think there's one KPI that we should look at, which especially for hundredweight, there's many KPIs, you want to balance those throughout. So you can see that it works. And our strategy really was to fill open capacity on our dedicated lanes and that's why we made that decision to do so, and that's why you see the other positive KPIs and the results happening.

Okay. Yes, that's super helpful. And it looks like, obviously, you're making some very targeted decisions in Intermodal as well. Maybe just want to get a sense of where you are in that repricing process and certainly, we've been hearing a lot about the regulatory impacts on the Truckload market. So any thoughts on how that's affecting Intermodal capacity as well would be helpful.

So on the Intermodal, some of that strategic rate increases were in general rates, and some of that was on fuel rates. So the team took action starting in Q1 that really impacted in Q2. Most of that is settled where it needs to be now. So we're in a good spot on the Intermodal side of addressing all the things that were deemed underperforming. And we really appreciate the customers working with us. We were transparent in the situation that was happening to us, and they understood and stuck with this and [ pay ] us reprieve on those issues.

And then maybe just the last one, I can't help myself here. But on the customer retention, you talked about the opportunity to retain an additional 25% of the business. Any thoughts on what the time line for a decision might look like there?

It's rather tough, Bruce to answer that, but I would say before the end of the year, for sure. But a time line -- other piece, there's a lot of moving pieces here. So we're very pleased with what we've achieved in the MOU thus far. And we will continue to have those conversations and plans to have success there.

We'll move next to Scott Group with Wolfe Research.

So just a follow-up on that last point on the customer. So the $250 million of revenue was in '25. Can you give us some sense of like where that's trending, tracking in '26 just because we'll build our '27 mile off of '26. So if you have any color there?

No, we don't give comments or commentary on any one particular customer. Let alone this one takes being one of the biggest. I just might read there first, sorry, Scott. No. This is what the -- I think we're actually doing really well. The service level continue to be incredibly high with this particular customer. And given anything more than what we did in the May release would be akin to releasing the code for coke. So we'll slightly pass on that. We'll continue to provide research to those guys, and we'll benefit from their continued internal organic growth.

Shawn made a specific point saying like calling out that it's growth [indiscernible] early this year. So I just wasn't sure if that's meaningful or not. So that's what I was trying to understand. Okay. Jamie, you had a comment we feel like we're at a tipping point in leverage, assuming diesel remains at current levels. Maybe could you just talk about the impact of fuel in the quarter and how you think about like earnings sensitivity around diesel prices?

Yes. I'd say, it's actually fairly usual with our competitors relative to my strength in the space, diesel was up, I think, 51% over the last 4 months, started increasing in March remained elevated April, May, June. It remains that way -- now. I think in terms of what we're experiencing in the market in July relative to the second quarter is we're seeing pretty much a continuation of that performance. So all else being equal, if you attract the EIA, [indiscernible] to go down to the previous levels until the early part of 2027. So we're going to get the tailwind and the benefit of fuel for the foreseeable future, obviously, that can change with the stroke of the pen. But you and I both know that it increases a lot faster than it decreases.

And then maybe just last question tightening Truckload market, how should we be thinking about purchase transportation and whether I think your pricing relative to the cost of [ PT ] is a net positive or negative going forward? .

Yes. I think we're in a pretty good place, Scott. As you know, we have a lot of our own assets on our Truckload side that we benefit from a more controlled cost basis than just open third-party market. So we're in a very good spot in our Truckload space.

I'll move next to Harrison Bauer with Susquehanna.