Forward Air Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 10 speakers on the call.

Operator

Welcome to the Forward Air First Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. I would now like to turn the call over to Michael Hance, Chief Legal Officer.

Speaker 1

Good morning and thank you, operator, Thanks everyone for joining the call today. Before we jump in, I just wanted to take a moment to thank our teammates, customers and shareholders, many of whom are on the call today, for the incredible support over the last several months as I served as Interim CEO. In particular, I want to acknowledge the employees and independent contractors and drivers who have been and continue to work tirelessly to provide best in class service to our customers and make this combination that we're working on a success. I'm humbled by what you do, and I am so grateful for your hard work. Thank you.

Speaker 1

Last quarter, I told you that my mandate as interim CEO was to provide the appropriate leadership while our teams continue to work through the integration of Ford and Omni. At the same time, our Board's dedicated search committee was focused on promptly identifying a top quality CEO to run the company during the next phase of our growth and development. That work is done, and I personally couldn't be more pleased with the outcome. I'm thrilled to introduce you to Sean Stewart, who began his tenure as CEO Ford on April 28. The Board and our advisors conducted a thorough search and are confident Sean is the right leader to drive Ford's future success.

Speaker 1

He knows this industry inside and out and has a demonstrated track record of successfully delivering growth, operational excellence and profitability. As an 18 year veteran of Ford who cares deeply about the company's success, I'm personally committed to ensuring Sean hits the ground running as I return to my role as Chief Legal Officer and Secretary. And I know all of our teammates share that same commitment. I'll close by reiterating that we recognize these past few months have been bumpy as we navigated turbulence in the freight market and within our company. Our team is confident that is behind us and we are all united and energized by the opportunities ahead.

Speaker 1

With that, please allow me to turn it over to Sean for his remarks before Rebecca runs us through the numbers. Sean?

Speaker 2

Thank you, Michael, and thank you to those on the call who have provided a warm welcome and words of encouragement as I assume my new role a week ago Monday. I won't go into more details about my background as I'm sure you've all seen the press release, But let me just say that I couldn't be more excited to join forward at this critical juncture. The addition of Omni paves the way for the company to become a market leader in global supply chain as we leverage the new capabilities while enhancing our best in class expedited LTL and other ground services. I'm going to pass the call to Rebecca in a moment to provide you with details about our financial results. Given that I've been here less than 2 weeks, I'm not going to speak too much except to say that these results are not indicative of what you will see from us the rest of the year.

Speaker 2

We are headed up and onward from this day. I also want to share my view about the context of the company's Q1 performance, which I think is important to keep in mind. Our first quarter results were negatively impacted by 2 really tough headwinds. 1st, these results were generated in a weak freight environment. 2nd, I'm convinced that these results reflect the impact of the distraction by the challenging circumstances leading up to the closing of the omni transaction.

Speaker 2

I wasn't here, but you don't have to ride a roller coaster to know that people riding the roller coaster probably aren't focused on much else. Since closing, Michael and the team have done a great job pushing forward with integrating 2 companies and capturing synergies, which you will hear more about later. But 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. Thankfully, that distraction is behind us now. As I mentioned, it is premature for me to start talking about Ford's numbers, but today I want to commit to 2 things.

Speaker 2

1st, as I said earlier, we are headed up from here. When we are back on this call at the end of the second quarter, I believe we will be talking about different results that show significant improvement. I need a little bit more time before we are ready to give you targets, but I can tell you that in my first days with the team, we are focused on accelerating synergy capture and identifying opportunities to eliminate significant cost from our structure. We are going to aggressively and urgently address our profitability issues and I fully expect us to be a category leader in our space with corresponding financial results. 2nd, we are going to enhance our investor communications to ensure that we are clear, transparent and comprehensive with our data and communication.

Speaker 2

You should expect to see steady improvement in information flow over the next couple of quarters providing you with the financial information that you need and want. Starting with our Q2 earnings release, we will provide full year 2024 guidance and information about our path to achievement. Why am I confident about these commitments? Because I did my own diligence before accepting the forward opportunity. And I found a number of things that I like and I'm excited about.

Speaker 2

1st, this organization is made of great people. During these first two weeks on the job, I've been impressed with the quality and dedication of people I've met throughout the legacy Ford and Omni Business. And I've been pleased to find that these businesses share a common DNA of providing excellent customer service. That will not change and the quality and commitment of our people will serve as a strong foundation for our growth. 2nd, I can't stress this enough.

Speaker 2

As a result of this combination, Forward Now has an incredible and unique platform for long term growth and success and its current areas of underperformance are very addressable. Let's talk about the platform. In the Omni legacy business, we now have a true global supply chain network to add to our core LTL network. Remember, we run the best in class premium service LTL network in the U. S.

Speaker 2

With an on time percentage of 98.6 and a car rental claims ratio of 0.04%. We are starting to see the power of the revenue synergies of these assets. Because of our combined capabilities, we were recently awarded a substantial volume of business from a Fortune 500 Global Technology company. We are finalizing the contract now and we expect the business to start in June. We have similar opportunities in the advanced stages of our sales pipeline.

Speaker 2

Also, we continue to gain new business wins from existing customers. As an example, we recently renewed a contract with 1 of our top 20 legacy Ford customers that will generate an annualized revenue 4 times its historical trends. Additionally, in a tough freight environment, our intermodal team added 13 new logos in the Q1. All this makes me optimistic about the rest of the year. Another point of strength is our broad and attractive customer base spanning our 3 distinct commercial channels.

Speaker 2

Let me pause to say thank you to all of our customers for your business and support. Under my leadership, we plan to drive growth in all three channels, but I want to be clear. We remain committed to our legacy Ford customers, including freight forwarders, airlines and 3PLs. We are committing to continuing to provide them with our premium LTL services to enable them to grow their business. We have honored that commitment since closing and we will continue to provide these key customers with that same great service.

Speaker 2

In my diligence review, I found that Omni has a strong track record with its customers and does a great job of providing them with solutions around the world. I'll name 1. Omni provides critical value added warehouse services for Navidea. We are honored by the trust placed on us by customers like Navidea. In my view, there is much to be excited about at Forward.

Speaker 2

Those are my initial high level thoughts and I naturally will provide more detailed comments on next quarter's call. Right now, addressing the business and financial performance will be the focus of all my energy and time. Rebecca will update you on some progress made so far this year and I look forward to providing additional updates soon as we make even more headway. Hopefully the slides we filed along with the press release demonstrate our renewed commitment to providing enhanced disclosure of our performance and integration of Omni. With that, let me turn it over to Rebecca to run through the quarter and provide an update on the Omni integration.

Speaker 2

Rebecca?

Speaker 3

Thanks, John, and good morning, everyone. Let's start by reviewing the force kernel results for 2024. I'm not going to read through slide by slide, but we'll reference certain slides by number when helpful. Before I dive into the numbers, I want to reiterate a point that Sean made in his remarks. We do not believe that our Q1 results are indicative of what we expect for the remainder of 2024.

Speaker 3

Those numbers don't tell the full story about the potential earnings power of the combined company. Let me highlight a few of the reasons why, some of which Sean has already touched on. First, the Q1 is always the slowest quarter of the year for business based on historical seasonal trends. Next, these results continue to be impacted by challenging market conditions that persisted throughout the quarter, particularly in the intermodal, truckload brokerage and omni lines of businesses. The challenging market conditions led to decreased customer demand for those services, a pattern that we have seen since the Q2 of the prior year.

Speaker 3

As we continue to execute our revenue growth strategies in the Q1, we saw positive trends in our less than truckload business with weight per shipment growth of 7.4% and shipments per day growth of 1.4% over the same period last year. We have experienced solid retention levels with our legacy Ford customers, which has been positive for revenue growth. During the Q1, we also saw a 0.7% increase in our revenue per shipment excluding fuel and a 6.2% decrease in the revenue per 100 rate excluding fuel over the prior year period. The decline in the revenue per 100 rate excluding fuel was driven primarily by the shift in the business mix as we execute on the expansion of our door to door solution. Finally, our Q1 results reflect minimal synergy impact We expect to see a steady increase in the subsequent quarters until the synergies are fully realized by the end of 2025.

Speaker 3

From a liquidity standpoint, at the end of March, we had a $340,000,000 capacity on our revolver and $172,000,000 of cash on hand. We are taking all actions to improve liquidity and we do not foresee the need to draw on the revolver. We look forward to sharing more details about our path to deleveraging in the context of our 2024 full year guidance during our 2nd quarter's earnings call. Before we look at the numbers, I want to point out that the omni results are reflected in our Q1 results from the closing of the acquisition that would be January 25 through the end of the quarter. Our first quarter revenue was $542,000,000 an increase of 52% or $184,000,000 as compared to the Q1 in the prior year.

Speaker 3

This increase of $184,000,000 over the prior year period was driven by $225,000,000 of revenue generated by segment and $4,000,000 of incremental revenue generated by our Expedited Freight segment, partially offset by an incremental decline of $32,000,000 from our Intermodal segment. Our adjusted EBITDA was $29,000,000 a decline of 51% or $30,000,000 as compared to the Q1 in the prior year. This decrease of $30,000,000 was driven by an adjusted EBITDA loss in the augmenting segment of 6,000,000 dollars an incremental EBITDA loss of $7,000,000 in our Expedited Freight segment, an incremental EBITDA loss of $8,000,000 in our Intermodal segment, and incremental EBITDA loss of $9,000,000 in other operations. For other operations in the Q1 of 2023, we recorded a one time one. A similar benefit was not reported in the Q1 of 20 1.

Speaker 3

A similar benefit was not reported in the Q1 of 2024. We saw adjusted operating income of 13,000,000 dollars excluding acquisition amortization compared to $47,000,000 in the prior year. Acquisition amortization is the amortization related to allocation of the purchase price of Omni to intangible assets. We reported adjusted net loss per diluted share in a continuing operations basis excluding acquisition amortization of $0.64 compared to net income per diluted share on a continuing operation basis of 1 point $2.7 in the prior year. Our operating cash flows for the Q1 was a negative 52 $61,000,000 for the prior year period.

Speaker 3

Our operating cash flow for the Q1 included the payment of transaction and integration cost of 40,000,000 We consider the payment of transaction and integration costs to be one time only costs that are not expected to reoccur in the second half of the year. We project our liquidity to be at a lower point in the first half of the year as a result of these one time only costs. Looking ahead to April, our shipments per day increased approximately 4% and our revenue per shipment excluding fuel increased 2% over the same period last year in our less than truckload line of business. Additionally, on a consolidated basis, our revenue grew sequentially from March to April by 6%, a period that historically has shown contraction versus growth based on seasonality. The 5.9% general rate increase we announced in December went into effect in February and will enable us to continue to serve our customers with the same precision execution in an environment with rising operating costs.

Speaker 3

The capture rate was higher than 2022 and the rate increase is comparable with the increase in the operating costs expected for 2024. Now turning to the integration of Omni. On Slide 6, we outlined some key metrics on 4th business and on Slide 7, on these, which we hope is helpful historical context. But what we're really excited about is what these companies look like together and the opportunity for value creation we see from the emerging from the combination. We are pleased with the progress we are making on integration.

Speaker 3

As you will see on slide 10, we have provided updated cost synergy targets. We now expect to deliver full run rate cost synergies of 70 $3,000,000 by the end of 2025, which is very much in line with the initial cost synergy targets provided in August 2023. We have adjusted the initial estimate of $75,000,000 by less than $2,000,000 due to volumes associated with the LTL and PUD synergies. We are pleased to report that we've already delivered synergies of $7,500,000 in the Q1 and we expect to realize $55,000,000 on an annualized basis. We expect to derive the rest of the synergies of $18,000,000 from incremental actions in the area of network optimization, facilities consolidation, SG and A, technology and brokerage.

Speaker 3

With regards to our capital position, as you will see on Slide 10, as of March 31, the combined entity had more than $512,000,000 of liquidity. Last quarter, we outlined relevant terms of our existing credit facilities, so I will not go into that detail again here, but I will highlight that we have headroom in our financial covenant as we continue to focus on our integration and realize the cost synergy opportunities. We remain in compliance with our bank covenants at the end of the first quarter. In terms of our capital allocation priorities, we are committed to derisking our capital structure and we are already undertaking several initiatives to deleverage. We intend to return to net leverage of 4.5x by the end of 2025.

Speaker 3

Key steps include a focus on profitability of the combined entity and the realization of the cost synergies to generate cash from operations as well as an accelerated portfolio review to identify potential divestitures. We are actively reviewing our portfolio and plan to take swift action to monetize on those assets. With that, I'll now turn the call back to the operator to take comments and questions.

Operator

Our first question is coming from Bruce Chan with Stifel. Please go ahead. Your line is open. Bruce, please make sure your phone isn't muted.

Speaker 4

Yes, sorry guys. Good morning. This is Andrew Cox on for Bruce. Sean, what's the floor in here?

Speaker 2

Thank you, Andrew. Hey, good morning.

Speaker 4

We know it's early, Sean, but we did want to square up what you feel your mandate here at Forward is. Why did you take this position? What you bring to the organization? And what do you feel you can get done in relation to those areas of improvement you found to be very attainable in your diligence? Thank you.

Speaker 2

Thank you, Andrew for the question. Well, to be honest with you, I love this business and when I looked at the opportunity of potential of that. Obviously, I also watched the bumpiness of the transaction. And secondly, Andrew, I love challenge. So for sure it's going to be a great challenge, but one that I'm extremely excited about, ready for and I know we can bring this together and draw the true potential of this merger or acquisition together.

Speaker 2

And so that's why I took the opportunity.

Speaker 4

Great, Sean. We look forward to seeing what you're capable of achieving here. And Rebecca, if

Speaker 5

I could just follow-up with

Speaker 4

a quick one. I know you guys are within the realm of the debt covenants this quarter, but I just wanted to know if you've had any response from creditors, how much runway they may be willing to give you moving forward? Thank you.

Speaker 3

Yes. Andrew, thanks for the question. We've looked as we talked about, we'll come back in our Q2 and give full year guidance for 2024, but we talked about the levers we're going to pull in terms of profitability, in terms of cost reduction, in terms of asset divestitures. And so when we look at all of that, which is on the table, we believe that will continue to be within our bank covenants. And so there'll be no need for us to go back and talk with our creditors.

Speaker 3

So we just feel confident in the plan that we have in place and with now Sean on board, we're very focused on working through those levers and we believe that will help us in terms of having continuing to have the headroom from now until it becomes a maintenance covenant.

Speaker 4

Okay. Good to hear. I'll hop back in queue. Thank you.

Operator

And we'll take our next question from Vasco Majors with Susquehanna. Please go ahead. Your line is open.

Speaker 6

Thanks for taking my questions. Can you talk a little bit about the results of the Omni Audit and anything you learned out

Speaker 7

of that?

Speaker 6

And did any of the historical figures change and why? Thank you.

Speaker 3

Yes. That's great question. Good morning. In terms of the preliminary numbers that we talked about on our Q4 earnings call, As we mentioned, the audit was in progress at that time. We did not have any number changes from the preliminary estimate from our Q4 earnings call.

Speaker 3

It was more of getting through the audit process to get it complete.

Speaker 6

And on the last earnings call, you talked, yes, we can see the quarterly cash flow in the statement, but there's a lot of noise from the deal and working capital there. On the last call, you talked about being cash flow positive relative to debt service for the I think that? And how much breathing room do you have? Thank you.

Speaker 3

Yes. Vascon, as we you're right, we did talk a bit about 1st of 4 to 5 weeks of what we saw from a liquidity standpoint and being able to generate cash to service the debt. As I talked about earlier, we have had quite a bit of one time only cost in the Q1. We there to be some additional one time only costs in the second quarter. But when we look at the second half of the year, we believe that noise will be gone with that to a normalization.

Speaker 3

And so, I do think that once you strip out those one time only costs, I do think that we are free cash flow positive and we feel pretty good about that. We just got to get some of these one time costs behind us to get to the second half to have a normalization.

Speaker 6

And I know you don't want to guide the 2nd quarter at this point, but do you have any sense of the magnitude of those one time costs and how they will compare as a cash flow drag to what you experienced in the last few months?

Speaker 3

Yes. I certainly think you're right, Vasanth, and we're not guiding to the Q2, but I think there were the largest ones coming out of the closing of the acquisition are in the Q1. So I think the height of them are in the Q1 and they will taper down into the Q2.

Speaker 6

You talked about normal seasonality March to April typically being negative. So it's good to hear that that's headed in a more positive direction. Could you quantify that and just give a range around how super seasonal we are here?

Speaker 3

Yes, I think it's from our standpoint, we know that it's positive. If you look back to last year, there was a bit of some noise in terms of where the market was in Q2 from March to April of last year. So I think you can probably reference back to there in terms of where we are this year. It's a little more, I would say, normalization in terms of where the market conditions are. So we like to see this as a favorable in terms of the sequential growth from March to April, given that those market conditions are now somewhat the same between March April.

Speaker 3

And so that gives us a lot of confidence in terms of our ability, as we talked about, to become profitable and have the revenue growth and the synergy capture between the 2 entities.

Speaker 6

And last for me, just to clarify that point. You talked about revenue being super seasonal month over month with the growth? Does operating income or profit follow that shape as well or has that been different?

Speaker 3

Yes. We're just not in a position on call to be able to speak to the bottom line for that revenue. Generally, one would think that revenue is up in terms of being able to cover off on those fixed costs. So generally, you would expect for there to be the profitability to follow the revenue. But we're not just in a position on this call to be able to address the numbers.

Speaker 6

Thank you.

Operator

We'll take our next question from Scott Group with Wolfe Research. Please go ahead. Your line is open.

Speaker 8

Hey, thanks. Good morning. Nice to speak with you, Sean and Rebecca. So I just one thing I just want to clarify, I wasn't following. The slides say that there's been $55,000,000 of synergies realized to date, but sounds like, Rebecca, you're talking about a much different number.

Speaker 8

So could you just clarify that?

Speaker 3

Yes, sure. Good question. If we look at the slide, I just want to maybe it's helpful to kind of walk through some of these numbers. So the $55,000,000 is what we've already achieved. That's the annualized run rate.

Speaker 3

We recognized $7,500,000 in our P and L in the Q1. So that would be over 12 months is the $55,000,000 in the 7 point 5 is what we recorded in the Q1. For the 1st 12 months of this year of 2024, we expect that number to be $47,000,000 Does that help to

Speaker 8

clarify? Yes, that's helpful. So I know we're not getting specific guidance, but do you think Omni gets back to positive EBITDA in Q2 as these synergies ramp and given the revenue uptick you're talking about?

Speaker 3

Yes. Scott, as you mentioned, we're not going to give guidance for Q2, but we are we recognize that this is a top priority for us and we are focused on the levers that we can pull in terms of generating profitability for the combined and see really focusing on revenue growth, focusing on the cost structure and being able to align that cost structure. And so I think between those 2 as well as our synergies, so I think between the profitability of the revenue growth, I think looking at the cost structure and as well as the synergies, I think those are all levers that we are actively working to be able to generate profitability, not only for Omni, but also for the combined NC.

Speaker 8

Okay. Maybe I'll try to ask it a little differently. So you said that you expect to stay within the covenants and there's obviously there's a lot of noise and a lot of add backs. How much EBITDA do you need to generate in Q2 to stay within the stay under the 6 times covenant?

Speaker 3

Yes. Scott, I think as we said, we're not going to give the guidance, but we'll give you more full year guidance when we get on the Q2 call, but we obviously have projected out what we believe and we foresee the earnings potential of the combined entity to be. And so looking at those numbers and being able to run the calculation, we believe we'll still have the headroom as we go into the Q2. And just as a reminder, the Q2 is the first time that we officially have to test for that financial covenant. So only allow us access to that revolver.

Speaker 3

But we feel really we've run the numbers and we feel like there's a headroom and we'll be in compliance as we look ahead and we look forward to sharing more about that full year guidance on our next earnings

Speaker 8

call. Okay. And then the March to April commentary, is that did you see that at expedited intermodal omni, where are you seeing the sequential improvement? Is it everywhere?

Speaker 3

Yes, that was a that's a consolidated number, but we have seen growth in our in all lines of business.

Speaker 8

Okay. And then maybe just last question. So the way that you guys reported today in terms of omni as its own revenue and earnings line and then adding back the purchase amortization, which I think is something you haven't done before. Is this the new reporting structure just so we have for our models? Yes.

Speaker 3

I think Scott, with Sean on board, we're certainly going to evaluate our segment reporting. And as Sean sees fit in terms of how he views the business, those segments potentially could change. We're not right now, we're not able to speak to what that may or may not look like. I will say from an acquisition amortization standpoint, we do plan to add that back going forward. So I think you can count that in your model, but I think in terms of the reportable segments, this may or may not shift depending on how Sean views the business on a go forward basis.

Speaker 8

Okay. Thank you.

Operator

And we'll take our next question from Stephanie Moore with Jefferies. Please go ahead. Your line is open.

Speaker 9

Hi, good morning. Thank you. Sean, I wanted to touch on some comments that you made about some of the early revenue synergy captures that you're seeing and just demand from your current customers and just thoughts on kind of revenue synergies now the view at the helm and obviously the integration in place? Thanks.

Speaker 2

Thank you, Stephanie. So what I see here is obviously the legacy omni business utilizing the asset of forward is a big piece. And when you start looking at the potential future, it's important when people look at and they make decisions on do you have your own assets or not. And so I would say there is 2 major segments here of the domestic forwarding moving into the network and 2, how we leverage or how we're leveraging our international business utilizing the network on a pre and post international business.

Speaker 9

Got it. Thank you. I guess maybe taking this, I guess one point of clarification and maybe you said this before, but just trying to get a sense of it. The historical monthly seasonality between March April, what is that normally? I don't know if it's a total company or tonnage or best way for you to break that out?

Speaker 3

Yes. I think Stephanie, what we said in our earnings release is that if you just look at last year, it was a contraction, it was a 15% and that was on a pro form a basis between the two companies. So that wasn't just us buying Ami to increase that number. That was on a pro form a basis. So it's negative 15% last year versus a 6% growth this

Speaker 9

year. Got it. And then just I guess another one for me. You talked about the continued focus on a portfolio review. Any color there in terms of which assets within the business do you think might be not helpful or not part of the strategic plan of the combined entity with the legacy expedited and omni business, just a little bit more color on what might not be part of the long term strategy?

Speaker 1

Hey, Stephanie, this is Michael. Great question. And we are actioning a plan to divest non core assets in 2024. But really we can't give specifics beyond that, but that we are working that plan aggressively.

Speaker 9

Okay. But in 2024, got it. That's helpful. And then lastly for me, I think it will certainly be helpful to get some more color on 2024 guidance when you provide when you report 2Q. That being said, at that point, we'll probably be or the point we will be 8 months into the year.

Speaker 9

And as you can imagine, we're all going to be focused on 2025 as well in some respects. So any chance of updating maybe kind of the long term potential or not long term, but provide a multi year view of what the combined entity can be or at least maybe update some of those original numbers that were provided when the acquisition was announced?

Speaker 3

Yes, Stephanie, I think as Sean mentioned in his remarks that we are looking to give transparency to the investor community. And so I think there certainly could be an opportunity for us to be able to give a longer term view because you are correct. By that time, we'll be through the large portion of 2024. So it's certainly not off the table and we want to give the right view to the shareholder and analyst community to better understand the value that we see with the combined entity.

Speaker 9

Got it. We will leave it at that. Thank you.

Operator

We'll take our next question from Christopher Kuhn with Benchmark. Please go ahead. Your line is open.

Speaker 5

Yes. Hi, good morning. Thanks for taking the question and Sean, welcome to Forward.

Speaker 2

Thank you, sir.

Speaker 5

Rebecca, I think you said the historical EBITDA figures didn't change, but I mean it does look like maybe some of the adjustments might have from the presentation you gave last year to the presentation you have this morning. Can you just help me understand that?

Speaker 3

Yes. So maybe, Chris, just to make sure that I understand, I think you're referring back to the presentation, the investor presentation we gave in August of 2023, is that correct? Yes. There's only just a handful of adjustments that were excluded from the presentation, more so to conform with non GAAP reporting for a public company. And so there's just a handful.

Speaker 3

It's really just the pro form a EBITDA adjustments that were removed from that presentation and carried forward. Otherwise, everything is the exact same.

Speaker 5

Okay. And to that end, there's $65,000,000 of EBITDA add backs in the quarter. You broke that out a little bit more in the quarter to date numbers for can you maybe break out that $65,000,000 so just we can understand what's in there? I know that there's transaction costs, but maybe what's in that number?

Speaker 3

Yes, that's right. The $65,000,000 is really it's broken out into 2 numbers, the largest of which, as you have pointed out, is going to be those transaction and integration costs and then severance costs is the other piece that we have in there. This transaction and integration cost would be anything that's related to this acquisition that the combined entity incurred during the quarter that's in our P and L. And then the severance costs obviously are reduction in force actions that were taken and so it's the cost associated with those. We consider those to be one time only non reoccurring costs.

Speaker 5

Okay. Okay. And then just I think did you mention on the how did you mention during the call how that core LTL network business did? I know the brokerage business and the intermodal business hurt the EBITDA, but I'm just wondering how the core LTL business did or in terms of your expectations?

Speaker 3

Yes, certainly. From our less than truckload line of business, our core business as you've called, from an operating stat standpoint, we saw some favorability in terms of the volume growth and we certainly saw from a revenue per shipment standpoint, ex fuel, we also saw some positive growth there. That would reflect staggered GRI coming in to the revenue throughout the quarter. But we did see some green shoots in our less than truckload line of business. So we feel really good about that in terms of the Q1.

Speaker 5

Yes. I'm just I'm wondering about the EBITDA. I know you don't break that out, but I'm just wondering how the EBITDA did on that core business just based compared to your expectations?

Speaker 3

Yes, we didn't break that out. We talked about that from an expedited Freight segment. But certainly, I think, Chris, just the I think the what we're seeing from a positive nature on the operating stats, I think certainly would reflect the positivity from an EBITDA standpoint.

Speaker 5

Okay. And then just lastly, you talked about the freight market being weak in the Q1, but what if that persists into the rest of the year? How do you feel comfortable in terms of your covenants and reducing the leverage and hitting your cost synergy targets?

Speaker 3

Yes. So certainly, Chris, as we're thinking ahead to those covenants, certainly what we can speak about is what we can control. And so what we can control are taking out costs and so kind of right sizing the cost for the combined entity. We can control in some respects, right, kind of asset dispositions. And then obviously, continuing to grow from a revenue profitability.

Speaker 3

It is, as you pointed out, it will be a bit difficult from the revenue profitability in this environment. But we've seen already April being positive. We now have Sean that's on board. And so we see all of that as being some good signs as we head into the Q2.

Speaker 5

Okay. Thank you.

Operator

We'll take our next question from Bruce Chan with Stifel. Please go ahead.

Speaker 4

Hey, team. Thanks for letting me squeeze back in here. It's Andrew again. I just wanted to address attrition both on the customer side and on the omni sales force side. Last quarter, you said you guys weren't seeing any material customer attrition.

Speaker 4

I just wanted to know if anything has changed there. And then also, what's the attrition been like at Omni Salesforce? And what's the plan to integrate the team? And then as a follow-up, Sean, what are some of the things that you can bring and what you can do to defend against both customer attrition and attrition of the omni sales force? Thank you.

Speaker 1

Hey, Andrew. Happy to answer. This is Michael. I'll start and then pass it to Sean. I'm pleased to report that the answers on customer attrition and salespeople attrition is still positive.

Speaker 1

I mean, I've had many interactions with our customers over the past several months. And as Sean said on the call in his opening remarks, they are looking for us to continue to provide them with the same great service that enables them to win and we are committed to doing that and have continued to do that. And so we have not seen customer attrition. And with respect to the sales team, we have a great sales team and they are laser focused on winning in this tough environment and we're grateful for that. And there are as part of one of our integration work streams is sort of working on how to integrate from a commercial side and sales side and that's fully engaged and ongoing.

Speaker 1

And I think with Sean now at the helm, he'll be speaking into that and directing it and steering it. And you'll hear more about that in days ahead. But Sean, I'll pass the mic to you on that.

Speaker 2

Yes. So, thanks for the question, Andrew. Look, in full transparency, if you're not growing your debt in this business and I like to spend a large majority of my time personally involved with customers. So obviously, I've got a lot of work to do ahead of me with the team to get the most optimal out of this venture quickly. But I will segment my time over this next quarter to split those time capsules, if you will, between direct interaction with customers, with the sales team to ensure that we continue to give that confidence and listening to understanding what solutions we can bring to their supply chain throughout this combined network.

Speaker 1

And Andrew, if I could just jump back in. I'm not doing justice because I've had the great pleasure of sitting with our sales leaders and working with them closely over the past several months. And I just can't tell you how impressed I am with them and how dedicated they are to delivering that great service to our customers. I've been in so many meetings where they get kudos from the customer because our people are just so committed. So I think that is a great asset for us and something that as Sean said in his remarks, our great people are the foundation for which we're going to build on.

Speaker 1

And so just want to call that out specifically and say

Operator

We'll take our next question from Tyler Brown with Raymond James. Please go ahead. Your line is open.

Speaker 7

Hey, good morning.

Speaker 1

Good morning.

Speaker 3

Hey, Tobey.

Speaker 7

Hey, Rebecca. So just so I have it, on the EBITDA calculation for the debt covenant, is it basically you just take the last 4 quarters of pro form a EBITDA and then they add kind of the run rate synergies? Is that effectively correct?

Speaker 3

Yes, Tyler. In our deck, we did give in the appendix, we gave a reconciliation for the trailing 12 months. But you're right in terms of just the pro formas of the last four quarters. And then there's adjustments that we add back, the largest of which would be our due diligence transaction integration costs. But then you're right on the run rate of the cost synergies.

Speaker 3

So that's right, it is the 75,000,000 dollars obviously adjusted for any that we realized within our R and P and L or ones that we've achieved. But in implicit terms, that's correct.

Speaker 7

Okay. So if I come back to Scott's question even kind of another different way, but what was the bank applicable pro form a EBITDA in the second half of twenty twenty three? Do you have that by chance maybe for Q3 and Q4 because it's very hard to do the calculation?

Speaker 3

Yes. We just provided the bank's calculation is on a trailing 12 months and so we wanted to be transparent in terms of what that looked like. And so we provided the trailing 12 months versus breaking it out between the quarters to get there.

Speaker 7

Okay. Well, obviously, cash flow is going to be super important here. And based on the comments, again, because I think on the last quarter call, you said that February was cash flow positive, which implies that March was

Operator

a big

Speaker 7

burn. I mean, can you commit to having positive operating cash flow in Q2? Or are you just not ready to do that?

Speaker 3

Yes. I don't think we're ready to speak to really Q2. But Tyler, I can assure you that this is as you've said, this is a top priority for the company. We are very focused on liquidity. We are very focused on deleveraging.

Speaker 3

We will acknowledge that there are some one time only cost in the Q2 as we have some lingering expenses to be paid from this acquisition. But once you get to the second half of the year, it's more in a normalized environment. We also believe that these synergies that we've talked about, we've already proven that $7,500,000 are in our P and L for the first quarter and we believe that there is more yet to come in the second quarter and in the second half of the year. So also, as we talked about in the cost reduction, we have some programs that are underway as we speak. We'll give you more clarity of those on our 2nd quarter earnings call, but all the actions that we are taking sets us up to be able to be cash flow positive as you have asked in your question and that's what our focus is and that's what we're working to be able to provide you on our Q2 earnings call.

Speaker 3

But hopefully that gives you just some context about how we're viewing liquidity and the action steps that we're taking.

Speaker 7

Okay. A couple more. So I think on the cash flow statement, you also paid out a $12,000,000 earn out. What was that for?

Speaker 3

Yes, that's right. It's down in the financing section. There was a legacy Omni acquisition, where we were an earn out was earned and doing payable. It was split between Q1 and Q2. So the $12,000,000 that you see down in the financing, that's one piece of it.

Speaker 3

There'll be a second piece in the second quarter.

Speaker 7

Okay. Equal size?

Speaker 3

No, it's a smaller, a larger portion was paid in the Q1, it's a smaller portion in the Q2.

Speaker 7

Okay. And my last one, so on the leverage ratio calculation, I thought that the cash cap was, say, $50,000,000 It seems like you were able to add back 100 and $55,000,000 in the calc this quarter. Am I just misunderstanding how the calculation is done?

Speaker 3

No. Tyler, after a further review, we are able to add back unrestricted cash, which essentially is our domestic cash. And so that is correct. That's why the $155,000,000 is tied back to our balance sheet because we were able to take a larger portion of that as long as it's not restricted cash to deduct, it's netting against the debt.

Speaker 7

Okay. All right. Thank you.

Operator

And next we'll take another question from Besco Majors with Susquehanna. Please go ahead. Your line is open.

Speaker 6

Thanks for the follow-up time here. Just to go back to Tyler and Scott's angle, as we look at the trailing 4Q lender EBITDA, you're going to lose the Q2 of last year, which will obviously be challenging even with sequential improvement versus the Q1 of this year. Is there any way to frame the lender number of EBITDA on an adjusted basis for the 2nd quarter last year just so we can think about the risk of losing that going forward?

Speaker 3

Yes. I think, Vascon, again, we you're right that we will drop off as we move into the quarter, you're right, we'll drop off 1 quarter. I think as we've kind of started the call, I'll kind of go back to what we had Sean and I both had said is that we just don't believe that the Q1 is really representative for the remainder of the year. And so while we do, we will drop off that quarter as you mentioned, I think as we think ahead to Q2, I think it's a misnomer to believe that Q1 will be reflective of Q2 results. And we have actions that are underway in terms of all the things that we've talked about.

Speaker 3

And so with that, we do believe that we'll be in compliance. And so even with dropping off of last quarter and picking up our 2nd quarter results.

Speaker 6

Okay. And Sean, maybe from you, I know you've been here days, not months, quarters or years, but you spent a career at a business that was acquired and then owned by in a highly leveraged state for a long time. Can you talk a little bit about sort of the kind of leverage crisis type experience that you learned from that? And how that skill set of both running a business while managing a challenging debt load and cash flow situation has led you to this opportunity here at Ford Air. And what you've learned from that that will enable you to create value for equity holders here over the next few years?

Speaker 6

Thank you.

Speaker 2

Sure. Appreciate the question. I would say at just maybe a high level, what I learned is that you don't win the game playing defense and you don't win the game just playing offense. It's how you play both of them at the same time to bring a situation that's not so good into something that's really positive. And so my approach to this opportunity of being here is that we're completely focused on both of those at the same time and that will take us to the optimal situation that we need to be in at the quickest rate.

Operator

And that will end our Q and A session. And this will conclude today's Forward Air 1st Quarter 2024 Earnings Conference Call. Please disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
Forward Air Q1 2024
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