Emera Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Forward Air Second Quarter 2024 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. I would now like to turn the call over to Mr. Tony Carino, Senior Vice President of Treasury and Investor Relations. Mr.

Operator

Carino, please go ahead, sir.

Speaker 1

Thank you, operator, and good afternoon, everyone. Welcome to Forward Air's Q2 2024 Earnings Conference Call. Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air's website atforwardair.com. With us this afternoon are Sean Stewart, Chief Executive Officer and Jamie Pearson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air's Q2 2024 results, which was also furnished to the SEC on Form 8 ks.

Speaker 1

We have also filed a slide presentation outlining the Q2 2024 earnings highlights and a business update. Please be aware that certain statements in the company's earnings release, announcement and on this conference call are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 2024. 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 Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call.

Speaker 1

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 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.

Speaker 1

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 direct comparable GAAP measures are included in today's press release and webcast presentation.

Speaker 2

I will now turn the call over to Sean. Thank you, Tony, and good afternoon, everyone. Thank you for joining the call today. I would like to start by reiterating my excitement about the opportunity that lies ahead of us. We are in the nascent stages of taking 2 good companies and making them great as a single unified global logistics enterprise.

Speaker 2

We are building on their individual strengths and leveraging our global freight forwarding capabilities of the legacy omni entities, while continuing our best in class domestic expedited LTL, truckload and intermodal offerings. Those legacy strengths are many and I am proud to share that we are being recognized by objective third parties. For the 4th consecutive year, Ford has been recognized by Inbound Logistics Magazine as a top 100 third party logistics provider and our omni team in Asia was honored with an award from Sirius Logic in recognition of the long standing partnership, best in class customer service, and impeccable inventory accuracy we provide. I'm incredibly proud of our associates who make our customers their first priority and treat them as an extension of our own family. It is because of them that we are able to receive such awards and retain and grow our customer base.

Speaker 2

Shifting gears for a second, I wanted to address some more holistic and strategic items before turning the call over to Jamie to report on the quarter's results. First of all, the integration is progressing as planned and delivering the synergies and the cost savings as originally anticipated. The transaction closed a little over 6 months ago and since that time we have actioned certain initiatives. We expect these initiatives will reduce our operating expenses as well as reduce our real estate footprint and employee headcount, thus improving our operating leverage which is expected to position us very well when the freight market returns to normal or improves from the current levels. In terms of timing, we have already actioned all vital activities and expect to be at a full run rate savings basis by the end of the Q1 2025.

Speaker 2

Secondly, I want to discuss the undue concern over customer attrition. Did we lose some volume prior to and immediately after the transaction closed? Yes, we did. Very few if any companies in the world can go through a complex integration like the one we did and not experience some disruption. However, we have spoken to many of these customers and clarified our continued commitment to them which aligns with our strategy.

Speaker 2

We have seen some of those volumes already return. We believe the service we provide will be the ultimate driver of customer retention and growth and everyone on this call as well as our customers are aware of the level of service this company has and continues to provide. To that end, we are starting to see the power of the synergy of our combined capabilities. Customers continue to see the value in the combination of our air import service paired with our LTL network. We mentioned this last quarter.

Speaker 2

Another recent customer win stemmed from our ability to offer contract logistics warehousing, LTL, truckload service in combination. We do not believe that this would have been possible prior to the Omni acquisition. Thirdly, going forward, we will be transforming from 2 separate companies to a product focused and operations driven company. We will be going to market on an incredibly focused vertical basis in ground, air, ocean, contract logistics and customs brokerage services. Transforming 2 multibillion dollar companies with almost 7,000 employees does not occur overnight, But my years of experience in this industry leads me to believe that building trustworthy relationships, customizing best in class solutions, and offering competitive pricing with great on time service is what customer wants and that's what we intend to give them.

Speaker 2

We expect to enter 2025 as 1 unified company having actioned all necessary activities to take advantage of the combined company's strength and having harmonized the cultures of 2 very successful and proud companies. Going forward, we will share the same goals, same mission, values and above all an employee base that shares the same focus on customer experiences that are best in the industry. We still have a lot of work to do like harmonizing of IT systems, business rules, benefit plans, compensation plans, none of which I take lightly and certainly not easy. But the most important, we intend to have our operations fully integrated with one exception. Our ground LTL will stay neutral as we remain an open network supporting our 3PL and freight forwarder customer base.

Speaker 2

This will allow us to take full advantage of our combined operational earning power by the end of the Q1 in 2025. In closing, in the first call I was asked why I joined Forward. Today, I am more resolute in my decision than I was even 3 months ago. I believe in the combined power of this company. That is not to say that there will not be setbacks along the way, because there will be, but rather the difficulty should be worth the effort and I am excited about where we are heading.

Speaker 2

Another reason for my excitement is attributable to the arrival of Jamie whose collective experience is helping me lead and drive the organization currently and into the future. With that, I will give some closing comments at the end, but I will turn it over to Jamie to go through the results for the quarter.

Speaker 3

Thanks, Sean, and good afternoon, everyone. Before jumping right in, I'd like to take a second and thank everyone for their warm wishes. I know it's barely been 2 months since darkening the door, but everyone has been incredibly gracious and I appreciate everyone's support to date and look forward to reconnecting with many of you from my past. And before you ask, what attracted me to this opportunity, let me answer in advance and say that the past 20 years of my experience has been preparing me for this very role. From our previous public company CFO roles to my operating advisory days to my transportation experience, they have all led me here today talking to you.

Speaker 3

Selfishly and personally speaking, let me say that I'm honored to be a part of this team and look forward to the great things to come. I'm also excited for the opportunity to work alongside Sean. He's a very skilled and proven leader and his long tenured sales and operating experience is very complementary to my finance acumen and I'm confident in our collective abilities to get the job done. In terms of focus and priorities out of the box, notwithstanding the obvious performance, leverage, covenant compliance and liquidity, it has been and will be for the foreseeable future people, processes and data, specifically upgrading and integrating the finance and accounting teams, instituting more rigorous and disciplined financial and accounting processes and access to actionable data. All of this should lead to an ability to run the business on a more predictive, data driven basis and to increase credibility through our ability to deliver on commitments and to better explain our results to you.

Speaker 3

As everyone knows, Omni was not a public company and consequently lacks the reporting and advanced analytics that I like to utilize and am accustomed to seeing. So we have a ton of work to do here and a product specific focus that Sean mentioned earlier will require yet another heavy lift, but we will get it done. In terms of level of effort, I want to be very clear. Transformations of this size, magnitude and complexity are never linear. And for those of you who have been involved in 1, actually on the front lines, then you know there are days when the rate of improvement is straight up, there are some days that are sideways and there are even those days that are down or backwards.

Speaker 3

What is important is creating the time and space to execute on the end goal and the associated timing to get there. Now that I've got all the words out of the way, let's turn to the numbers for the quarter. I know many of you all too well and know that you're not listening to a single word I'm saying, but you're scouring through the press release for the stats and the results. So I'll try to keep my comments high and tight, so we can leave more time at the end for questions. Our 2nd quarter revenue was $644,000,000 an increase of 93% or $310,000,000 as compared to the Q2 of the prior year.

Speaker 3

The increase over the prior year was obviously largely driven by the omni transaction. More germanely would be to look at the revenue from our 3 reporting segments: Expedited, Intermodal and Omni, which were as follows. Revenue from expedited increased $22,000,000 or 8 percent to $291,000,000 from the previous year's comparable quarter of $269,000,000 The increase was primarily driven by small yet consistent gains across all revenue operating KPIs, namely a 1.4% increase in shipments per day, 2.5% higher weight per shipment and most importantly, higher revenue per shipment ex fuel at 3.7%. Revenue from Intermodal decreased $5,000,000 or 8 percent to $59,000,000 from the previous year's comparable quarter of 60 $4,000,000 The decrease was primarily driven by 4.8% less shipments for the comparative quarter and 3.2% lower revenue per shipment as the industry normalizes from the post pandemic exuberance winding down in the Q2 of 2023. The revenue increase from Omni's results, which were not included for the previous year's comparable quarter, was the full $311,000,000 Turning to income or loss from operations, it is incredibly important to note that we incurred an impairment charge in the amount of $1,100,000,000 related to our omni reporting unit that negatively impacted the quarter.

Speaker 3

For those of you that care, we are simply following accounting guidance as it is customary to revalue goodwill based on current market conditions as indications warrant, but no less than on an annual basis. On a pre impairment basis, loss from operations would have been $3,000,000 I believe it is equally as important to note that this is a non cash charge. Again, we're simply following accounting guidance on a non cash charge and are moving forward on integrating 2 companies to form a singular global logistics powerhouse. As for consolidated EBITDA, as defined in our credit agreement, we reported consolidated EBITDA for 2Q 'twenty four of $81,000,000 Since we did not own Omni in the Q2 of 2023, it is difficult to make a meaningful year over year comparison, so we will focus our comments on a sequential basis. To wit, the $81,000,000 represents a $26,000,000 increase in consolidated EBITDA as compared to the Q1 of this year.

Speaker 3

Our cash used by operations in the Q2 of 2024 was 45,000,000 by operations of $52,000,000 in the Q1 of this year. As illustrated on Page 11 of the earnings presentation uploaded to our website, approximately $34,000,000 of cash was consumed this quarter from legacy transaction costs and professional fees and another $46,000,000 from interest payments. On Page 9 of that same presentation and based on our gross debt balance at the end of the quarter and after netting domestic unrestricted cash, our net debt to consolidated LTM EBITDA covenant was 5.2x compared to a maximum covenant level of 6x implying an approximate $40,000,000 cushion against the consolidated EBITDA for the quarter. We have also included a quarterly consolidated EBITDA reconciliation in the appendix to help you build your models and track our progress. I thought you guys would appreciate that.

Speaker 3

Turning to liquidity. We ended the quarter with total cash of $105,000,000 After adding that $105,000,000 to $340,000,000 of availability under our revolving credit facility, liquidity was $445,000,000 at the end of the quarter. For those of you who know me from my previous quarterly calls, you will remember that I generally tried to leave you with a couple of additional points of color every quarter. Holding on to that tradition, I will try to do the same here as there is no shortage of things to talk about. First of all, I would like to address the status of our integration.

Speaker 3

If you will refer to Page 7 of the presentation, you will see the stages we have mapped out inclusive of forecasted or anticipated savings. For reference, we have been managing expectations to approximately $75,000,000 in annualized savings. The good news is we now expect to reach that run rate earlier than previously communicated and have increased the anticipated amount of savings. Now, we expect to reach that level by the end of the Q1 of 2025 and have added an approximate $20,000,000 of additional annualized headcount savings from actions already taken in June of this year. 0.2, everyone is fully aware of our need to delever.

Speaker 3

To that end, since starting, we have commissioned a full portfolio review of all of our operations with a particular focus on those we deem non core to our strategy. And before you ask, let me say in advance that we will not publicly comment on which operations those are. Asset dispositions aside, the most important thing we can do to delever is to operate and generate cash. Since it is a net debt calculation, shrinking the numerator while simultaneously growing the denominator will do wonders for our leverage profile. Thirdly, is cash consumption.

Speaker 3

In our Q1 call, we did not do a very good job explaining the decrease in cash. In an effort to be transparent, please reference Page 11 of the posted presentation. Literally 100% of the cash consumed in the Q1 was consumed by transaction costs, integration expenses, debt principal pay down, interest payments and earn outs and purchase price adjustments from previous transactions. In the second quarter, very similar albeit on a much more scaled down basis, as previously stated, approximately $34,000,000 of the cash was consumed this quarter was from legacy transaction costs and professional fees and another $46,000,000 from interest payments. With the transaction expenses winding down, going forward, we anticipate being neutral to inflecting cash flow positive in the 3rd or 4th quarters of this year.

Speaker 3

And for my final point, while I have only been here a little over 2 months, I see opportunity around just about every corner. Please do not get me wrong. Culturally, we have a considerable lift ahead of us. Operationally, we have 2 very good companies who just got distracted during a fairly tumultuous period of time and 7,000 very hardworking employees that have recently joined forces as one. I do not want anyone thinking that we have all the answers, far from it.

Speaker 3

But we are almost literally working around the clock to build a robust consolidated reporting organization that will partner with sales and ops to take full advantage of the opportunity we have been given. To date, there hasn't been anything that I have not seen before. And in one very, very rare occasion where I speak for Sean and the extended leadership team, we are most concerned with putting points on the Board versus hyperbole or press releases. So I would not look for us to say much, but we will spend our time, energy and effort on the task at hand in improving results. I will now pass the mic back over to Sean for a closing comment before Q and A.

Speaker 2

All right. Thank you, Jamie. As promised on the Q1 call, I committed to giving full year 2024 guidance. While the external macro environment has remained challenging integration itself introduces a level of volatility into the results, I will share with you that I believe that we will end 2024 with consolidated EBITDA as defined in our credit agreement of somewhere between $310,000,000 dollars to $325,000,000 As already shared, we have a lot of work to do. While we cannot declare victory yet, I am confident in this team's ability to deliver and I'm honored to lead this team.

Speaker 2

I will now turn the call to the

Operator

We go first this afternoon to Bruce Chan of Stifel.

Speaker 4

Yes. Thanks, operator, and good afternoon, gents. Really good to have you on the call. Certainly appreciate the time here. A bunch of questions, maybe I'll just keep it to a few and then jump back in line here.

Speaker 4

Maybe to start off on the cost rate sales side, I know that had been one of the key strengths for the legacy omni business. Wondering if you've seen any significant departure or attrition there just in terms of the sales force? And do we still feel like that high growth organization is intact there?

Speaker 2

Yes. Good afternoon, Bruce. Good to talk to you. Yes, we've seen no real attrition to be honest with you. I would say the biggest impact is just being able to sit down with the team, explain the vision to them of where we're going.

Speaker 2

They've been very invigorating in the last several months and even better things to come than even probably legacy before I arrived to what was said. So yes, still very, very excited about our future with that omni sales team on the direct side and we see the pipeline increasing. We see high, high achievement rates on converting that pipeline, and they're moving extremely fast. So more to come.

Speaker 4

Okay, great. That's super helpful. And then really appreciate the color on the 2024 guidance and sticking to your promise there, Sean. Obviously, some moving parts in terms of how the EBITDA is tabulated. Maybe if you can offer any color on what the revenue and OR assumptions that are used to kind of underpin that guidance might be helpful.

Speaker 3

Hey, Bruce, it's Jamie. Yes, we're not going to give you any guidance on anything other than what we did already. In terms of where we are, there's still a lot of volatility that's in the numbers. So our perspective is really running the business between now and the end of the year and doing better than obviously what we're trying to commit to here. So we're going to stick to the guidance that we've given.

Speaker 3

And then in terms of the pieces, there's still some of the segments in between. Some will contribute more than others, but we're going to change or intend to change the reporting segments again by the end of the year the way that Sean said during his prepared remarks. It's absolutely the right thing to do Bruce, especially for the long term success of this company and the business, but it's going to add another level of granularity to how we run this business, but we're not report not prepared to report anything other than what we've already given.

Speaker 4

Okay. That's fair. And then maybe just a last one here on the topic of granularity. I know you said you're still working on that. But if I'm to think through the volume performance in the quarter, especially on the legacy Forward Air side of the house, any kind of commentary you can give as far as how the revenue progression and specifically volume trended between the kind of classic AtoA business and some of the other lines?

Speaker 3

Yes. I don't it is in terms of where I've been here, Bruce, it's literally not even 3 months, 2.5 months. Not prepared to go in that just yet. What I would say is from our perspective, you see the small marginal gains across the entire segment for the quarter. Palant are up, shipments are up, revenue per hundredweight is up, revenue per shipment ex fuel is up.

Speaker 3

From my got opposed to the individual pieces.

Speaker 4

Okay, got it. Appreciate the time and I'll hop back in queue.

Operator

Thank you. We go next now to Bascome Majors at Susquehanna.

Speaker 5

Good evening. As we look forward to your opportunity to reach that neutral to cash flow positive sometime in the second half of this year, Can you walk us through some of the assumptions to get there? I guess we have your EBITDA guidance, which implies you do maybe on average $10,000,000 or more per quarter in 3Q and 4Q than you did in the second quarter. But what else is happening on the cash flow model to get you to that bridge? Thank you.

Speaker 3

Yes, absolutely. Vascon, good to finally meet you and talk to you. Yes, so there are 2 primary assumptions going there is really turning down these one time items as it pertains to legacy transactional and integration costs that goes with that. And any cash payments that related to that's going things that occurred in 2023 that we're having to pay for in 2020 I'm sorry, happened in 2023 that we're paying for in 2024. Things like earn outs from previous deals, working capital true ups from previous dispositions.

Speaker 3

So the assumption to get there is really not that great candidly. $33,000,000 of the cash consumption in this quarter of the $68,000,000 was from those kind of one time items. Other than that, covering debt service at $46,000,000 we don't have to improve the operations that much to actually become cash flow breakeven if not positive on a levered basis. So I think you'll see small improvements. The assumption are small improvements on the extra side, expedited especially in the truckload side.

Speaker 3

Intermodal, this holding served because they're performing well. You can see here in the press release and then the continued increase in performance on the omni side. If you look at the Q1 of this year, Omni reported negative $6,000,000 in EBITDA, this quarter positive $20,000,000 So I'm really focused on the sequential improvement in omni and continued small improvements in the other aspects of our business and turning down those one time transactional expenses that will get us to that magical breakeven point.

Speaker 5

And extending that, you're at 5.2x leverage ratio on your covenant calc right now.

Speaker 3

As you

Speaker 5

get into the back half of the year, where do you expect that headroom based on your forecasting to stay? And do you have full access to the liquidity on your revolver in this condition? Thank you.

Speaker 3

Yes. So the answer in back to the back, yes, we still have full access. We're in compliance and we have $445,000,000 of liquidity since we are in compliance. So one thing that we kind of skipped past in some of the, I guess, prepared remarks is that having a little less than $500,000,000 in liquidity, dollars 445,000,000 to be exact, is a good spot to be in. In terms of where we're going to go through the back half of the year, if you look at the appendix, I know Bascome, we've not given you much time to do this, but we're trying to be more transparent.

Speaker 3

If you think about where we are or where we ended this quarter at $325,000,000 in LTM consolidated EBITDA, the guidance that we just gave you is really sideways. And so there is not a tremendous amount of improvement that we're forecasting in the business. And the step down in the covenant goes from 6 today to 5.5 at the end of the year. So we're still forecasting to be in compliance at 5.2 times.

Speaker 5

And lastly for me, you made a comment in your prepared remarks, Jamie, about just giving yourself the time and space to execute on the strategy and deliver on the transformation. And you've made some pretty pointed comments on the lender and cash flow constraints and risk. And I think given the market a lot more comfort on that. On your list of what could go wrong or be a setback outside of just cyclical downturn, What do you think about what keeps you up at night on not being able to deliver the plan as you see fit?

Speaker 3

What keeps you at night, Bas, going to the fact that we're working 20 fourseven. So very little sleep as we work through this. But in terms of creation of the time and space I'm talking about, it really is 2 or 3 things. 1 is Beth Golin, we have to prioritize. In my prepared remarks, I talked about opportunities around every corner.

Speaker 3

There are so many opportunities for us to improve around the edges that we need to focus on those that move the needle or the lever the most. So and it's a challenge because we all want to perform well and do well, but we can't go after everything all at once. So being disciplined about going after the bigger items first would be part of that time and space. And then the other thing keeps me up at night is just making certain that we can complete the integration and increase sales at the same time. It's a little bit of a triple Lindy, if you will, but there is a balance that we've got there that we've got to take advantage and avail ourselves of the cost saving opportunities that we have in a $2,500,000,000 organization and at the same time making certain that we continue to service the customer like we always have and keep that claims ratio low.

Speaker 3

When people go through times of distress and turmoil like this, it's easy to take your eye off the needle and I'm not talking about anybody in the four corners of this building. I'm talking about out there in the front lines. So not many things keep me up at night other than the fact that we're literally working around the clock to make this thing the

Speaker 2

best thing that we have. And Bascome to expand on that a little bit, I constantly challenge the group. Everything in this environment is important, but the key is what is vital. And we are separating the difference between important and vital and we're going after all of the vital things and putting in the top priority important things to execute on a daily basis.

Speaker 5

Thank you

Speaker 2

both. Thank you.

Operator

We'll go next now to Scott Group of Wolfe Research.

Speaker 6

Hey, thanks. Good afternoon, guys. So I want to there's a lot of numbers just trying to work our way through all of it. I just there's a pretty big delta between a 3,000,000 dollars adjusted operating income loss and $81,000,000 of adjusted EBITDA. I just want to sort of understand the pieces there.

Speaker 6

So like all the transaction costs and severance costs, are those being included or excluded from the operating income loss?

Speaker 3

So, no, they're included. That's why it's negative $3,000,000 for all intents and purposes. If I could, Scott, get you to focus on Page 15 for a second. This is where I'm trying to be more transparent,

Speaker 6

give you guys a little bit

Speaker 3

more granularity, not only in terms of those but also giving you more time and transparency of a backwards look. So if you'll go through if you just look at Page 15, we've actually broken it out by the type of add back that the credit agreement allows us. You got the transaction costs, you have severance, then you got that's at the normal add backs as you get to EBITDA, then you have a couple of transaction expenses. Our ability to add back the cost synergies on a pro form a basis. And then the very last one is we get the opportunity to add back what is quoted a pro form a event in the senior notes document that allows us to take an LTM advantage of an action or an event as if we had had it for the last 12 months.

Speaker 3

So let me be very specific. The June 15 reduction in force that we took that garnered us an additional approximate $20,000,000 in run rate EBITDA, we got to take that into the calculation as if we'd had it for the last 12 months. So if you just think about operating income, add back your garden kimono a little bit and show you where we're able to add back the other items under the

Speaker 6

credit agreement. So if I'm understanding this right, if you implement new cost reductions in Q3 of this year, you get to restate prior quarter EBITDA numbers and add whatever cost savings you have going forward backward as well?

Speaker 3

Yes. I'd say a little bit differently, but you're on the right track, Scott. We're not going to restate the past. The past is the past. But on the current, let's say, the Q3 that you're using as an illustration, we would get the benefit of that as it had been in place for the last 12 months.

Speaker 3

That is correct.

Speaker 6

Okay. But so what we're seeing on this Slide 15, right? Now these numbers are we shouldn't have additional numbers the add backs for pro form a cost synergies and June headcount reductions, we shouldn't see similar numbers in Q3 because they're now embedded in the actual operating results.

Speaker 3

That's right. You'll see those roll off and become actual results. Correct. Okay.

Speaker 6

Okay. A lot of moving parts there. Okay. And then just I want to clarify one thing. The free cash flow, did you say positive to neutral cash from ops or positive to neutral free cash flow?

Speaker 6

I just want to understand the I just want to make sure we're not

Speaker 3

Yes, in total, Scott. So not from ops, just I don't want to say I don't care where cash comes from because you know I do. But I think we all on this call care that we're generating cash so that we can net it against the debt not only for covenant purposes, but also speaks to the improvement in the base or the underlying performance of the company.

Speaker 6

And then just last one more fundamental. Any color on July tonnage revenue trends you could share?

Speaker 3

Yes. No, we're not going to give intra quarter guidance at this point, Scott. We're stretching our necks and up out there right now to do what we've done in terms of the full year. We're going to reevaluate that next quarter. But right now, we're going to prioritize and focus on integrating the networks.

Speaker 3

And to the extent that we get more comfortable with, I'd like to say, more than 2 at bats, 2 at bats being 2 months under our belts, we'll reevaluate that. But right now, we're just going to stick to what we've given.

Speaker 6

Thank you, guys. Appreciate it.

Speaker 3

Thanks, Scott.

Operator

Thank you. We go next now to Christopher Kuhn at Benchmark.

Speaker 7

Yes. Hi. Good afternoon, guys. Thanks for taking my question.

Speaker 2

Hi, Chris.

Speaker 7

So just double checking here, I think it makes sense, but that $55,000,000 adjusted EBITDA that you have on Slide 15, that's up from reported 1Q. That's the adjustments that you talked about in the previous press release about the changes, right?

Speaker 3

Yes. Well, what we gave in the previous press release was an update for the total LTM period. It wasn't just the last quarter.

Speaker 7

Yes, that's right. That's right. But some of that is in that adjustment for 1Q?

Speaker 3

That is correct.

Speaker 7

Okay. And then maybe just big picture, some of the Sean, you mentioned some of the volumes left in the quarter and then came back. Maybe just can you help us understand why the volumes left and why more importantly why they might have come

Speaker 6

back?

Speaker 2

Well, say that one more time, Chris. I didn't understand question.

Speaker 7

Sure. You talked about during the transition, some volumes left the network and then some of it came back. Can you just briefly run through why they might have left and then why they came back?

Speaker 2

Yes. So Chris, I would just share just in my conversations with customers, just the uncertainty, the non clarity of where the organization was going with this acquisition. Unsure of the strategy, clarity, do you want me, do you need me, are you keeping the network open? We see you're building a direct sales force. We're not comfortable with that.

Speaker 2

And we're mainly talking about, Chris, the legacy forwarders, freight forwarders in 3PLs. So been traveling a lot, seeing as many of them in person and this is the feedback I'm getting. So first and foremost, there is no more direct selling in the legacy Forward Air. We shut down that entity in Q2. There's just indirect sales that meaning the airline partners, the 3PLs and the freight forwarders.

Speaker 2

There is only direct selling in the combined organization on the omni side. So we're running 2 sales channels indirect on the legacy Ford, direct on the legacy omni. And that brought clarity and then obviously being very clear that we will remain an open LTL network for not just ourselves, but for those legacy customers in those three categories that we mentioned. And we are going to do that in a very neutrality driven, morally and ethically sound full non disclosure agreements with these customers not to backslist it, made it clear we don't need to do that. And so we are good stewards of growing our own business, but also supporting those customers and growing theirs.

Speaker 2

So that to be honest is I would attribute to why those volumes came back.

Speaker 7

Yes. No, that's fair. And I know you didn't want to get too specific, but just overall, when you think about the portfolio reshaping and you think about the impact it might have on maybe some of the cross selling bundled selling or whatever you want to call it. I mean, how do you think about portfolio reshaping in the context of selling multiple services to customers?

Speaker 2

Yes. So if you just look, I mean, let me finish the comment here. I didn't make a comment on everything I just told you. We are still a fantastic and best in class service business on both legacy companies and we are going to continue to honor that and even enhance that. So when you go back to some people call it cross selling, I call it really synergy selling.

Speaker 2

So when you look at the product based verticals that we're going to in air, ocean, ground, which many of that is the legacy Ford, contract logistics warehousing, which we do a lot of on the legacy omni side and then customs brokerage, you really want to draw those synergy sellings in between. So that really is the strategy. Your most stickiness is when you have customers inventory, I. E. The contract logistics space in your warehouses And the second most important is the customs brokerage.

Speaker 2

There's a phrase out there that says you date your forwarder and you marry your broker. And so, those are the 2 stickiness. But when you look at bringing these 2 companies together, having the legacy air airfreight, global airfreight in the omni side with the best in class LTL distribution of pre and post positioning of your international for pushing your exports into a consolidation gateway to go outbound or deconsolidating your imports for distribution and delivery on the inbound, having that network is a best in class and we fully intend to cross utilize that. So that's just some examples. I hope that answers your question.

Speaker 3

John, Christian, if I can add to that, there's something that Sean is really impressed upon. I mean, we had a recent good customer win that I don't think that we would have gotten individually as a company. It's only because of the combined services that the two companies provide that we're able to get this win. So we have a very good win on the international inbound side. Then once it hits the ground here in North America, we're able to get it to the final destination.

Speaker 3

I'm not so sure that we would have been able to get that win in terms of cross selling our services across both companies had we not been as 1.

Speaker 7

Okay. I'll stop there. Thanks for the time, guys.

Speaker 3

Thank you.

Operator

We'll go next now to Stephanie Moore at Jefferies.

Speaker 8

Hi, good afternoon. Good to meet you, Jamie, and thanks for all the color.

Speaker 3

Absolutely, Stephanie. Looking forward to talking to you.

Speaker 8

Absolutely. So I wanted to maybe go back to a couple of questions on just the reported EBITDA now, just so I have this clear. So maybe using the Q1 as an example, understood that you're now calculating EBITDA under your pursuant to credit agreement, that's fine. So the Q1 now calling that $55,000,000 The prior calculation definition got you to a 1Q EBITDA of $29,000,000 So the simple math would imply a $26,000,000 difference. Is that about the same differential that we could apply to 2Q if you were doing that same kind of pre and post calculation?

Speaker 3

No, I wouldn't do that Stephanie. And here's why. It is in the Q1, we didn't have the benefit of the headcount reductions in June. So the comparable number that you should be basing what you're trying to bridge is on $49,000,000 not $55,000,000 That's the first point. But also we went back, I think it's important to note Stephanie that we went back toward the credit agreement apart with counsel, with our accountants, with management and we did a complete 365 historical review.

Speaker 3

So it wasn't just in the Q1 and I'm so thankful that you asked and I'm able to explain is it goes back over the last 12 months in total, not any one particular quarter and there are items that we just candidly, Stephanie, we missed. Some of the things were severance that we didn't add back that we should have. There's some purchase price adjustments that we didn't avail ourselves of that we caught in the review and even some due diligence and transaction costs. But it wasn't all in the Q1. It transcends the entire 4 quarter period.

Speaker 8

Okay. That's helpful. I didn't answer your

Speaker 3

I can tell by your silence, I didn't answer your question. I just don't think you're using the Q1 as an extension of what you could expect in the future.

Speaker 8

Right. No, I think that's fair. But okay, so again going off of is then if you're going off of a trailing 12 month basis, do you have the delta between how it is being calculated now in your opinion more accurate way versus it was before? So if $26,000,000 in the Q1 is not the right run rate, what's the trailing 12 month differential?

Speaker 3

I'm not following your question.

Speaker 8

It's fine. I can certainly ask the soft one.

Speaker 3

Okay.

Speaker 8

So I guess, taking going to a different question here, so maybe a little bit more on the strategic side. Appreciate your color on kind of going from a go to market strategy from a product vertical basis. Are there any kind of incremental hiring needs to be made to kind of support this to go to market strategy? And kind of I understand running the 2 distinct sales forces, but any other incremental changes?

Speaker 2

I don't think so, Stephanie, not necessarily in a go to market basis. We've got as Jamie said earlier, we've got best in class people from both organizations. There is some great individuals all throughout the organization. So we are looking mainly internally as we move things around to promote and empower step up people to take on new positions as we make this transition.

Speaker 3

Yes. And to your question is, is there incremental CapEx dollars needed? No. Yes. I agree with that.

Speaker 3

We're basically seeing the organization on the side.

Speaker 8

Got it. And then lastly for me, maybe if you could touch a little bit on the capital structure. Is it kind of at this point, how we should think about preferred, minority interest, anything else? It's our understanding that you did vote on some of you did make some of these changes, but kind of an update there would be helpful.

Speaker 3

Yes. So at the shareholder meeting, I believe it was June 15, they all voted to convert. There's still some that are outstanding out there. So on a fully diluted basis, I think it's going to be closer to $40,000,000 That election, Stephanie, is at the holders, I guess, behest. So it's nothing that we can force.

Speaker 3

I think it would just come in through time.

Speaker 8

Okay. So we should still expect to kind of see some of those adjustments for some time now?

Speaker 3

Yes. And again, there are numerous individual holders and it's at their election, impossible to predict when that would happen. But that's why I look at the fully diluted as if converted basis around 40,000,000 shares.

Speaker 8

Okay. All right. I will turn it back over. Thank you.

Operator

Thank you. And gentlemen, it appears we have no further questions. Mr. Stewart, I'd like to hand things back to you for any closing comments.

Speaker 2

All right. Thank you so much. All right. So in closing, I want to personally thank everyone for your time and patience as we bring out the best of Ford can be. As previously stated, there's still much to do, but we believe in the results and we've also believed that it will be something worth that we can all be proud of.

Speaker 2

So appreciate your time today and we'll talk to you soon. Take care.

Operator

Thank you, Mr. Stewart. Ladies and gentlemen, that will conclude today's Forward Air 2nd quarter earnings conference call. Again, we'd like to thank you all so much for joining us and wish you all a great remainder of your day. Goodbye.

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Earnings Conference Call
Emera Q2 2024
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