Forward Air Third Quarter 2026 Earnings - FORWARD AIR CORP

Good afternoon, everyone, and welcome to the Forward Air 3rd Quarter 2026 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. so others can hear your questions clearly, we ask that you please pick up your handset for best sound quality. And lastly, if you should require operator assistance today, please press star zero at any time. I would now like to turn the call over to Mr. Tony Carino, Senior Vice President of Treasury and Investor Relations. Please go ahead, sir. Thank you, operator, and good afternoon, everyone. Welcome to Forward Air's third quarter earnings conference call. With us this afternoon are Sean Stewart, President and Chief Executive Officer, and Jamie Pearson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air's third quarter of 2026 results, which was also furnished to the SEC on Form 8K. We have also furnlished a slide presentation outlining third quarter 2026 earnings highlights and a business update. Both the press released 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 includes 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, including 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 in the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward- looking statements which speak only as of the date of this call. The company undertakes no obligation to update any forward-lookings statements whether they results 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-GAP 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 Sean. Good afternoon, everyone, and thank you for joining us. I am pleased to announce that our team delivered another quarter of solid results. We have reported the best quarterly revenue in company history for the last two consecutive quarters. Operating revenue was $674 million this quarter, which is an increase of $42 million compared to $632 million in the third quarter of 2025. while operating income improved to $44 million compared to $15 million a year ago. And we posted our best consolidated EBITDA results in nearly three years. Consolidated EBITTA, which is calculated pursuant to our credit agreement, improved by almost 30% to $101 million compared to $78 million a year ago It is important to note that our improvement was not localized at any one particular segment but strong across the board expedited freight reported its best revenue best operating income and best reported ebitda since the beginning of 2024. the operating ratio also improved by 330 basis points from 92.5 percent to 89.2 percent compared to the third quarter of 2025. the improvement was positively impacted by an increase in demand of our already time sensitive and expedited service offering with shipments and tonnage per day both notably higher compared to a year ago the omni logistics segment also continues to see an increase in the man for its services most namely our contract logistics and air and ocean services in the third quarter this segment achieved its best reported ebitda margin since the beginning of 2024 and the intermodal segment reported its best revenue in more than three years led by an increase in dray's revenue per shipment and has returned to its industry leading margins overall i believe our team has the company moving in the right direction we have made a tremendous amount of progress in the current market condition both on a macro and industry specific basis however i believe we have an opportunity to continue improving we plan to maintain the momentum and grow the business by consistently delivering best-in-class customer service our customers expect reliability consistency and dependable solutions and our goal is to exceed those expectations across every single service we provide. By remaining focused on continuous improvement, operations excellence, and customer satisfaction, we plan to continue strengthening our already deep relationships and improving our value proposition. Regarding the broader logistics space, capacity in the trucking industry has been tightening as the number of CDLs continue to be constrained. Combine that constraint with consistent demand and that puts us in a very good place to continue improving profitability as we have each quarter this year in constrained environments such as this shippers typically focus on stability and consistency to ensure capacity and to mitigate risk we believe we are well positioned to grow in this market environment through disciplined cost management and exceptional customer service as you saw a few weeks ago we announced a definitive agreement with one of our largest customers to retain a significant portion of the services we provide for them as previously disclosed we had been engaged in discussions with the customer regarding its planned transition and our intent to retain as much of the business as possible as also discussed this change was a function of the customer's operational and supplier diversification initiatives and had nothing to do with the exceptional service we have provided during our 20-plus year relationship under the new agreement the customer has agreed to continue utilizing the company for a significant portion of the services currently provided to them for a period of two years of the services to be transitioned we have already started that work which is expected to occur starting this month through march of next year the great news is the revenue from the services that are retained has continued to grow throughout 2026 and is expected to eclipse the total revenue for all of 2025 and anticipated to continue growing into 2027 and beyond we are pleased to bring this agreement to completion as we believe it reflects on our strength and our relationship with the customer and the exceptional level of service our team has and will continue to deliver with that i will now turn it over to jamie to go through the detailed results for the third quarter thank you that was sean and good afternoon everyone jumping right into it as you heard from sean we reported 44 million in operating income for the quarter which is almost triple the 15 million of operating income we reported a year ago consolidated ebitda increased 23 million dollars on a year-over-year basis in the third quarter to $101 million compared to $78 million for the third quarter of last year. The margin also improved by 280 basis points from 12.3% to 15.1%. Continuing on to LTM basis, consolidated EBITDA was $342 million as of the end of the third corner, almost $50 million higher than the same LTM period last year. If I could refer you to page 30 of the presentation, on an adjusted EBITDA basis, the third quarter results improved by $24 million to $99 million compared to $75 million in the third quarter of last year, which demonstrates the steady improvement in the quality of our earnings and its subsequent conversion to cash. Turning to the segments, expedited freight's reported EBITDA improved by 50% compared to a year ago. It increased from $30 million last year to $45 million this year, and the margin improved by 180 basis points, from 11.5% a year ago to 13.3% this year. Looking back to page 14 of the presentation, on a year-over-year basis, the expedited freight segment delivered improvements across several key operating and revenue metrics, including tonnage per day, shipments per day average weight per shipment, and revenue per shipment excluding fuel As you heard from Sean, the operating ratio also improved by 330 basis points to 89.2% compared to 92.5% a year ago Our strategy remains focused on improving freight characteristics, increasing network density, and maximizing the efficiency of our operating infrastructure. The quarter-over-quarter margin expansion provides further evidence of the progress we are making and reinforces the importance of staying disciplined and continuing to execute on these strategic priorities. At the Omni Logistics segment, reported EBITDA increased to $35 million in the third quarter compared to $33 million a year ago, and the margin improved by 170 basis points to 11.3% from 9.6%, as we improved the efficiency and operating leverage of both our air and ocean and contract logistics offerings. At the intermodal segment, we are seeing a return to the more consistent level of results that we are accustomed to see for this business. Reported EBITDA improved to $9 million compared to $8 million in the third quarter of last year, and the 14.3% margin this year was in line with the 14 5% margin a year ago. And I'll give you an update on the sales process in my closing remarks. Regarding cash flow, cash, and liquidity, we reported $35 million of cash provided by operating activities in the third quarter compared to $53 million a year ago. On a year-to-date basis, we've reported $76 million of cash provided operating activities, which is a $9 million improvement compared to the $67 million in the same period a year ago. As for liquidity, we ended the third quarter with $446 million, which is a $45 million sequential improvement compared to the second quarter of this year and a $33 million improvement compared to that third quarter a year ago. The $447 million in liquidity is comprised of $185 million in cash and $261 million in availability under the revolver. to an update on the sale of non-core assets as a part of our portfolio optimization strategy and as previously announced we successfully completed the sale of two smaller businesses within the legacy omni segment the sale the first business was completed in the second quarter and we closed on the second disposition early in the third our liquidity benefited by approximately 25 million from the monetization of these businesses with minimal impact to consolidated EBITDA. The remaining targeted divestiture that we announced was our intention to sell the intermodal business. This business is back on track, and we have even more conviction today based on its recent performance and near-term prospects than ever before. The drayage market is on the upswing, and our pipeline is as robust as I've seen in my tenure here. Having said that, we have higher aspirations for it than the process yielded, so we're going to pause while we continue to add a few more solid quarters under our belt. We very well may revisit the sale if and when the market reflects what we believe is the fair value for this industry-leading management team and asset. By no means does this preclude a sale, just not on the original timeline that we previously communicated. And consistent with past practice, I would like to leave you with a few parting thoughts. And at the risk of sounding repetitive to what we said last quarter, this is yet another best quarter since the transaction, which is no small accomplishment. And it is another stair step up, up from the $78 million of consolidated EBITDA we reported a year ago up from the 93 million last quarter up to 101 million this quarter this is no longer a data point as we had now done this for two quarters in a row secondarily is our ability to control what we control specifically costs we are doing a very good job of controlling our direct and overhead costs creating operating leverage as evidenced by the increase in our margins next is our ability to start growing into our capital structure and decreasing leverage ending this quarter below five times and nearly one full turn lower compared to this time last year and the lowest in nearly three years finally is the agreement with our major customer their reliance on our services as they continue to grow speaks to long-standing partnership and the quality of service we provide the agreement and organic growth exhibited by the customer in 2026 should bring stability to our earnings profitability and cash flow profile i will now turn the call over to the operator to take questions operator thank you gentlemen again ladies and gentlemen at this time the floor will be open for your questions if you have a question at this point please press star one on your telephone if at any point your question has been answered you may remove yourself from the queue by pressing star 2. again we ask that you please pick up your handset when posing your questions to provide optimal sound quality and also we ask you please limit yourself to one question and one follow-up we'll go first this afternoon to bruce chan with spiegel yeah thanks operator and uh good afternoon gents um you know first of all congrats on all the progress this quarter obviously you know it's been a fairly lumpy year getting to this point so you know maybe just wanted to get an update on how we should start to think about you know normalized margins for you know the overall business of course but also um the individual segments you know whether you care to give that as a you know kind of mid-cycle target or you know any thoughts on 2027 or you know even what you have left in the bag from a kind of turnaround and margin improvement perspective um you know anyway that would be really helpful hey bruce jamie here you know I'd say a few things, I guess, as we go into the fourth quarter is we're seeing pretty similar trend. I mean, granted, I mean we're literally, you know, a month into it, seeing pretty similar trends of what we're exiting that third quarter on and, you knows, strong revenue for shipment excluding fuel surcharge. I focus on that because I think that's, you know, what we can control and that's what, you know, where we're driving towards in terms of profitability of the network. I'd also say I expect to see the usual seasonality that we have in the past, you couple of years at least since we've been here just keep in mind bruce that there's fewer working days in the fourth quarter and the third quarter of every calendar year is usually one of the best for us in the calendar so you know all those being uh i guess equal we're seeing pretty similar trends just knowing that you know we have some seasonality and there's pure working days in before okay that's super helpful and then you know just as far as 2027 and i know you know it's early and you don't like to give a lot of guidance but you know are we kind of at a sustainable margin level or you know there's still a lot to chop in terms of the margin improvement story yeah yeah like you said you don' like to get a lot i don't we don't want to give any um so very very kind of you to give us a little bit of credit um you know from from my perspective you know we've spent the last two years uh stabilizing this company so that we could take advantage of the situation that we're in uh sean i'm sure you've got something yeah i would say bruce the company is is running extremely well and um the disciplines that we have in running this company uh is in our culture in our dna now so um you'll you'll i expect to see consistency um you know we don't we don' have a crystal ball to what the market's going to do uh in 2027 but you'll see consistency from us for what we can control okay fair enough i'll i'll turn it over thank you thank you thank you we'll go next now to jacob lax with wolf research hey guys thanks for your time so you saw a big acceleration in volume growth what's really driving that if there's a particular end market that's been unusually strong and to the extent this continues are you comfortable with the owner-operator pipeline that's sufficient to handle further volume growth or do we potentially need to increase uh purchase trends to attract some new drivers thanks yeah what's driving them or anything else is the way that we're running this network you know we are going you know obviously in the um i guess the ic market gonna have a little bit more variable cost than our peers but also we also have the best service jacob you know keep in mind that we've got the the lowest capex as a fraction of our peers And we're holding our direct operating expenses flat. So we're expanding margins. In terms of the volume pickup, it's not just the shipments. It's the weight. You know, if you think about shipments are up 7.9 percent, weight's up 6.9 percent, but also revenue excluding fuel is up 4.3 percent. So we'RE not pricing for profit. We'RE pricing for a network, and we'RE pricing in specific lanes. At the end of the day, we're looking for cash, not for price. And I would say, to add to that, in the owner-operator network, our reputation is extremely strong out there. So, yeah, I mean, I'm really, really happy with the way we're running this network, and I'm real happy with our model. So no concerns from our part of continuing to add. We've added over 50 drivers from the beginning of this year. um to what we have today so um i'm not worried about getting drivers into our network as we flex and is there any sense you can give in terms of how much extra further access capacity you have in the network uh somewhere between 15 to 18 percent right now okay okay thanks and then just on the customer agreement is there anyway you can help us how to think about 2027 omni revenue and i think you said retained services are expected to keep growing like can omni as a whole grow revenue i'm just trying to better understand exactly how much revenue can grow and grow revenue and will grow revenue um as it relates to the customer agreement um you know we use 2025 as as uh our initial um statement out there which was 250 million So when you look at the services that will be transitioned versus the growth we saw in 2026, that's what we're saying, the growth for what we are transitioning away, but the growth in the business that we are retaining will be greater than the $250 million that we did in 2025. Okay, great. Thanks for your time. Thank you. Thank you, and just a quick reminder, ladies and gentlemen, any further questions today, press star 1, and we'll pause for just one moment. And again, ladies and gentlemen, one final reminder, star 1, please, for questions. And again we'll pause for just one moment. We do have a question coming in now from Christopher Coon with StoneX. Christopher, please go ahead. Hey, guys. Good afternoon. Thanks for the question. I know there's a lot of moving pieces in that revenue per hearted weight X fuel. So maybe just can you talk a little bit about core pricing and kind of the sort of outlook for your pricing as we go forward here? I know the weight was up, and that certainly kind of distorts the actual revenue per hundred weight over the core pricing yeah i'm not again first i'm struggling with uh what you're looking for i mean obviously with the weight for shipment being up as much as it is it's the reason i don't like to look at revenue per 100 x fuel because we all know as soon as you know weight goes up yield gets pressure we we don't really ship yield we ship revenue so that's that's when we like to look at revenue, ex-fuel being up 4.3%. That, to me, is as core as it gets. Yeah, yeah. Oh, yeah, that's what I was – okay, that' fair. And then just the chart you always show on where the expedited freight business is in terms of the average on the operating margin, How should we think about your progress or sort of the opportunity to either get there or to make progress going there? Obviously, this quarter was a good start. Yeah, you know, we've been at this now, Chris, for two-plus years to get us to where we are. We've got the foundation established. It's been stabilized. Now we're going to take advantage of the growth. If you look at the delta between us and the peers, by and large, keep in mind that, you know, we're always in a one-quarter lag basis. We're reporting coincidentally with this quarter. This chart is one quarter behind. Look, we've got excess capacity. You know, Sean said it. And you think about capacity in its pieces. You've got trucks, trailers, terminals, and drivers. we are as flexible, if not the most flexible, in the entire space because we can add drivers faster than just about anybody out there. So I'd like to soak up that extra 15 plus or minus percent capacity with the highest margin business that we can find. Yeah, so there's no reason why you can't approach that at some point over time. Approach what over time? it is you know the average target uh margin targets that you show on that chart there for that's put out of business uh well i mean as john said earlier where you know we're always looking to improve um we're not at all declaring victory chris we're not we know there's more g's left in the tank uh our question is just a matter of when we can get there okay got it thanks guys thank you and gentlemen it appears we have no further questions today mr stewart i'd like to turn things back to you sir for any closing comments that's amazing when you do uh great results you don't get that many questions but uh listen in closing i'm very pleased that we've delivered another uh quarter of uh very solid results all the hard work we've been pouring into this company and it's uh it is showing up in the results so we're we're very pleased with that So, you know, just in the third quarter alone, we delivered the highest quarterly revenue in the company history. The expedited freight segment achieved the best revenue, best operating income, and best reported EBITDA since the beginning of 2024. The omni-logistic segment reported the best reported EVTA margin since the beginnig of 2024, the intermodal segment reported best revenue in more than three years and finally uh we we announced the definitive agreement with one of our largest customers to retain a significant portion of the services we provide for the next two years so i'm very very happy with these results and you'll continue to see us charting the path forward so we look forward to updating you uh on our continued progress next quarter and as usual if you have any follow-up questions please contact tony thank you so much thank you mr stewart again ladies and gentlemen this will conclude the forward air third quarter earnings conference call again we'd like to thank you all so much for joining us this afternoon and wish you all a great remainder