Q4 2024 Forward Air Corp Earnings Call
To the forward Air fourth quarter and full year 2024 earnings conference call.
At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation.
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I would now like to turn the call over to Tony Carina Senior Vice President of Treasury and Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to forward Air's fourth quarter and year end 2024 earnings conference call.
Speaker Change: This afternoon, Sean Stewart, Chief Executive Officer, and Jamie Pierson, Chief Financial Officer by now you should have received a press release announcing forward Air's fourth quarter 2024 months ago.
It was also furnished to the SEC on form 8-K.
Speaker Change: We have also filed a slide presentation outlining our fourth quarter 2024 earnings highlights.
Speaker Change: This update but the press release and slide presentation for this call are accessible on the Investor Relations section of forward Air's website at forward Air Dot Com.
Speaker Change: 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.
Speaker Change: These statements, which are based on expectations intentions or predictions regarding the company's future performance anticipated events or trends and other matters that are not historical facts, including statements regarding our fiscal year 2025.
Speaker Change: Statements are not a guarantee of future performance.
Speaker Change: These 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 Securities and Exchange Commission and the press release and slide presentation relating to this earnings call.
Speaker Change: 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 come.
Speaker Change: If you require assistance during your program, please press star zero and a coordinator will assist you. Thank you for calling.
Speaker Change: For them to U S generally accepted accounting principles or GAAP.
Speaker Change: Management uses non-GAAP measures internally to understand manage and evaluate our business and make operating decisions.
Please have your conference ID ready and a coordinator will be with you momentarily.
Speaker Change: If you require assistance during your program, please press star zero and a coordinator will assist you.
Speaker Change: <unk> initiatives and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation, I will now turn the call over to Sean.
Sean Stewart: Good afternoon, everyone and thanks for joining the call today I appreciate your interest in forward Air and the transformational journey, we are on <unk>.
Thank you for calling.
Sean Stewart: As is always the case with turnarounds with this much size scale and complexity. There are usually bumps along the way and this quarter was no exception.
Sean Stewart: But we remain resolute and excited about our future today. There are three main topics that I want to cover first I will review some of the key achievements in 2024 second I will share some thoughts on our 2025 priorities and I will close with an overview of the fourth quarter performance.
Sean Stewart: For the full year 2024, we reported consolidated EBITDA of $308 million.
Sean Stewart: Which is near the top of our guidance range of $300 million to $310 million.
Sean Stewart: We successfully closed out a very busy and noisy year that began with the closing of the omni transaction last January just 13 months ago I joined the.
Sean Stewart: The company three months after the transaction closed and quickly centered our efforts on stabilizing the company integrating the networks and I am pleased with the pace and rigor at which we moved.
Sean Stewart: Over the course of the year, we built out our leadership team that has both the experience and industry knowhow to not only lead. These two legacy companies into the future, but also unite them to get the most out of their individual and combined value props.
Sean Stewart: Above the team most importantly in our first year as a combined company, we put the customer first and focused on providing best in class solutions, leveraging the known capabilities of both forward air and Omnis global footprint.
Sean Stewart: We are building on their individual strengths and leveraging the global freight forwarding capabilities of the legacy omni entities, while continuing our domestic expedited <unk> truckload and intermodal offerings, we remain committed to providing our customers, including and especially our legacy freight forwarders and three PL Custer.
Sean Stewart: <unk> with the same award winning service they have relied on for years to grow their businesses.
Sean Stewart: We view ourselves as moving more than just our customer shipments with an undisputed dedication we take ownership of their supply chain challenges solving them with unique solutions that deliver possibilities for growth innovation and most importantly, a peace of mind.
Sean Stewart: We delivered on the targeted $75 million of integration synergies and cost savings that were circled out at the onset of the transaction.
Sean Stewart: We are at pace to exceed the initial target and remain on schedule to be at a full run rate of savings and complete the network integration at the end of the first quarter of 2025.
Sean Stewart: These initiatives reduced our operating expenses, our real estate footprint and employee head count and serve as the springboard for the transformational phase we are entering.
Sean Stewart: In the second and fourth quarters of 2024, we took additional steps to reducing operating expenses by incremental approximately $40 million per annum, including reductions in our workforce direct operating expenses and the use of third party vendors to date, we have executed.
Sean Stewart: On more than $100 million in annualized savings from synergies and cost out actions contributing to a more financially efficient company, while maintaining our high level of customer satisfaction.
Sean Stewart: During the year, we made several key additions to our leadership team, including Jamie Pierson as Chief Financial Officer, Jessica Herein as supply chain solutions and customer experience officer, Doug Smith, as Chief people Officer, and most recently, Eric Brandt as Chief Commercial Officer. In addition.
Sean Stewart: Tim Osborn assumed the responsibility for all North America ground operations.
Sean Stewart: With our management team largely complete I could not be more excited about the talent and industry experience. They all bring.
Sean Stewart: As we look ahead.
Sean Stewart: Foundational changes and investments made in 2024 are expected to benefit 2025 and beyond.
Sean Stewart: Our priorities include driving profitable long term growth by expanding synergistic service offerings for our customers, which will in turn lead to a higher and more profitable revenue.
Sean Stewart: In parallel operationally, we are officially turning our efforts from completing the integration to a much broader transformation strategy focused on rationalizing our it systems, improving the quality of our data and decision making.
Sean Stewart: We are also standing up a global shared services organization to assist us in integrating and managing our back office operations.
Sean Stewart: With Eric joining the company in January and leading our worldwide sales team. We are excited to grow revenue across our newly aligned global business.
Sean Stewart: He is a seasoned leader with a deep understanding of global logistics and supply chain management, giving.
Sean Stewart: Given his tenure and experience in this space. He is a firsthand knowledge and relationship with our existing customer base and has already set the path for our future growth.
Sean Stewart: Regarding transformation it is being led by our transformation management office and will impact legacy forward Air plus the 12 companies that make up omni that were previously not integrated.
Sean Stewart: During 2025 and with some work continuing into 2026, we plan to move away from multiple Tms ERP and HR systems to a rationalized <unk> network that is more appropriate for a unified singular company.
Sean Stewart: We expect these changes to reduce redundancies and enhance efficiencies across the organization.
Sean Stewart: Working with 6600 professionals that delivered on the targeted integration synergies gives me confidence that we will be just as successful in executing the transformation.
Sean Stewart: I will wrap up with a few comments on the fourth quarter, and then turn the call over to Jamie.
Speaker Change: Our results for the quarter were driven by consistent performance in the intermodal segment and yet another solid quarter at the omni logistics segment, achieving its best quarterly reported EBIT result.
Sean Stewart: The transaction.
Sean Stewart: Those results were further enhanced with additional round of cost reduction actions previously announce that equate to approximately $20 million on an annualized basis.
Sean Stewart: The expedite freight segment on the other hand did not meet our expectations and income from operations declined compared to a year ago, primarily due to the decrease in volume in line with the market at large and a pricing strategy put in place prior to the transaction that focus more on growth than profitability.
Sean Stewart: <unk>.
Sean Stewart: As noted the decrease in volume is generally in line with the <unk> market, which continues to be impacted by the prolonged slowdown in the freight environment.
Sean Stewart: The expedited freight segment fundamentals remain intact, we continue to be one of the best providers in the expedited service in all of North America in both on time service and claims ratio performance. We believe the service we provide will be the ultimate driver of customer retention and growth going forward.
Sean Stewart: <unk>.
Sean Stewart: The single largest issue was the pricing strategy that we discussed last quarter, what may not be as understood is the change in the mix of freight and how long it takes to remedy historical pricing actions.
Sean Stewart: The change in mix was a shift from our most profitable dense freight and then subsequent growth in our class base customers.
Sean Stewart: As you know class rated tariffs are less profitable than our traditional density rated tariff and as everyone knows it takes months to rectify a single poor pricing decision.
Sean Stewart: As covered on our previously earnings calls.
Sean Stewart: The good news is we started implementing corrective pricing actions during the fourth quarter and are seeing improvement that aligns with our expectations.
Sean Stewart: We expect to see the full impact of the corrective actions by the end of February and expect to shed some poorly priced freight from our system as a result.
Sean Stewart: All else being equal we also expect to see a commensurate yield improvement in the second quarter and beyond.
Sean Stewart: Our pricing strategy, whether class based or density based will reflect the quality of our service we provide.
Sean Stewart: I want to reiterate and ensure you the value and integrity of our network remains intact going forward, we expect to closely monitor how our volume is impacted and take appropriate cost actions to mirror the change to profitably run our network with that I will now turn the <unk>.
Sean Stewart: Call over to Jamie to go through the results from the quarter.
Jamie Pierson: Thanks, Sean and good afternoon, everyone.
Speaker Change: Getting right to it and beginning with the fourth quarter results revenue for the quarter was $633 million and on a required GAAP reporting basis. It was an 87% or $294 million increase as compared to the fourth quarter of the prior year the.
Speaker Change: The increase over the prior year was largely driven by the omni transaction since we did not own omni in the fourth quarter of 2023, it is difficult to make a meaningful year over year comparison. So we'll focus our comparisons for the Hanmi segment on a sequential basis to that point on a sequential and more comparative basis Consol.
Speaker Change: Holidayed revenue remained relatively flat decreasing three 5% or $23 million from $656 million last quarter to $633 million this quarter.
Speaker Change: Looking at our three reporting segments expedited freight intermodal and omni logistics revenue had expedited freight decreased $13 million or four 7% to $266 million from the previous year's comparable quarter at $279 million.
Speaker Change: The decrease was primarily driven by a five 8% decline in revenue per hundredweight, including fuel surcharge.
Speaker Change: And at four 3% decrease in tonnage per day.
Speaker Change: <unk>.
Speaker Change: At the intermodal segment revenue of $60 million was flat compared to the fourth quarter of 2023, an increase in revenue per shipment at three 2% was all offset by a decrease in the number of trades shipment of two 8%.
Speaker Change: The revenue increase from omni logistics, which was not included in the previous year's comparable quarter, whereas the full $326 million.
Speaker Change: On a sequential basis fourth quarter revenue at the Army segment decreased $9 million or two 7% compared to the $335 million reported in the third quarter of 2024.
Speaker Change: For the fourth quarter, we reported consolidated income from continuing operations of $76 million.
Speaker Change: Include the goodwill impairment adjustment of $79 million related to the army logistics segment that favorably impacted the quarter.
Speaker Change: Accounting rules require goodwill impairments to be retrospectively adjusted as purchase accounting adjustments made in the one year period following an acquisition.
Speaker Change: We do not expect to record any further adjustments in 2025 as a one year window is now closed.
Speaker Change: Consolidated EBITDA as defined in our credit agreement was $69 million for the fourth quarter or an 11% margin.
Speaker Change: As you heard from Sean for the full year of 2024, we reported $308 million near the top end of our guidance range. The margin for the full year was approximately 12%.
Speaker Change: Regarding consolidated EBITDA for the prior three quarters, we have adjusted their previous reported amounts by the actions we took in December to improve our cost structure there.
Speaker Change: Our credit agreement allows for the inclusion of the unrealized and pro forma savings from these actions to be included in our historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred.
Speaker Change: We adjusted prior quarters to reflect the amount of the cost savings. If you would please reference page five of the slide presentation issued today and you'll be able to see what we reported in the past and updated for the most recent cost out and pro forma action.
Speaker Change: Given the transaction expenses incurred in the first quarter of 2020 for any ensuing noise in the second through the fourth quarters, we anticipate that the quality of earnings to demonstrably improve in 2025 on a year over year basis. The first quarter of 'twenty five will be much cleaner than the first quarter of 2024.
Speaker Change: So on again and transparency, we have detailed the information use to build up the consolidated EBITDA result on page 16 of the presentation.
Speaker Change: Turning to cash and liquidity cash used from operations in the fourth quarter was $31 million at.
Speaker Change: As covered in the second quarter earnings call, we discuss inflicting to cash flow positive in the back half of 2024 and to that point in the third quarter, we reported cash provided by operations of $51 million.
Speaker Change: Combined with our fourth quarter net cash provided by operating activities was $20 million compared to the $97 million of cash used in operations in the first half of the year definition that is absolutely inflicting positive.
Speaker Change: As for liquidity, we ended the fourth quarter was $382 million $105 million in cash and $277 million in availability under the revolver for a total of 382.
Speaker Change: $78 million sequential decrease in the third quarter was a result of a $40 million reduction to the credit facility size in conjunction with the amendment and a $38 million use of cash which was predominantly impacted by $16 million in interest expense payments made during the fourth quarter.
Speaker Change: And as usual and commensurate with my past practice I would like to leave you with a few points of light for the quarter.
Speaker Change: The first of which is the amendment.
Speaker Change: They feel like a long time ago. It was literally less than two months ago that we amended our credit facility. The great News is the two months of preparation and negotiations should benefit us for years to come.
Speaker Change: As a refresher we traded a onetime $40 million reduction in facility size for four years of additional financial flexibility with significant covenant headroom.
Speaker Change: Most of you who know me know I do not take a reduction in liquidity lightly.
Speaker Change: But all things considered this was a very good trade for us as it is.
Speaker Change: Should alleviate covenant concerns over the immediate future as we ended the year with $59 million in cushion, which in turn will allow us to focus on executing our transformation.
Speaker Change: We are incredibly fortunate to have the support of our lenders for which I owe a debt of gratitude and appreciation to all of those involved.
0.2 is our continued focus on cash conversion liquidity and more importantly, the results we're seeing.
Speaker Change: In the first half of 'twenty for much of our cash was consumed by transaction costs and integration expenses debt principal paydown and other legacy calls on cash none of which benefited the company and.
Speaker Change: In the second half of the year, we saw a significant reduction in these items, which contributed to an increase in our cash and cash equivalents balance by $20 million and again, we ended the year with a little less than $400 million in liquidity.
Speaker Change: But ultimately as Sean noted turnarounds of this size and magnitude and complexity are not linear.
Speaker Change: Some quarters are better than others and that was certainly the case for us in the fourth quarter, while we could have performed better financially in the fourth quarter, we absolutely killed it in the transformational changes we made to the business that should service that foundation stability in 2025 and growth in 'twenty five and beyond.
Speaker Change: As everyone knows there is always a lag from the time that cultural changes are injected into a companys DNA and the time that they bear fruit and 24 was that pivotal period of time and I'm very much looking forward to what we can to deliver as a combined company.
Speaker Change: Finally regarding the strategic alternatives review that we announced last month.
Speaker Change: As we indicated in that press release, we do not intend to disclose developments related to this process until the board determined that further disclosure is both appropriate and necessary other than to say that it is progressing as expected.
Speaker Change: As such we respectfully ask that you keep your questions focused on our earnings as we will not be sharing any information about the process.
Sean Stewart: I'll now pass the mic back over to Sean for closing comments before Q&A.
Sean Stewart: Thank you Jamie I am proud of what our team accomplished in 2024, we know we have more work to do to achieve the results. We know we are capable of delivering.
Sean Stewart: We started 2020 for playing a lot of defense and transition to playing more offense by the end of the year, serving as a springboard for 2025 and beyond.
Sean Stewart: Our associates around the World came together as one and I am confident in our ability to execute our strategy grow the company and enhance shareholder value. We will remain focused on meeting our customers' needs and are making the necessary investments that will allow us to benefit from any rebound in the freight environment win.
Sean Stewart: It occurs.
Sean Stewart: I'll now turn the call over to the operator to take questions operator.
Sean Stewart: Bruce.
Speaker Change: The floor is now open for questions. At this time, if you do have a question or comment Please press star and one on your telephone keypad.
Speaker Change: If at any point. Your question has been answered you may remove yourself from the queue by pressing star and two again, we ask that you pick up your handset when posing your question to provide optimal sound quality.
Speaker Change: Our first question is coming from Bruce Chan with Stifel. Please go ahead. Your line is open.
Andrew: Hi, Good afternoon, Shawn and Jamie This is Andrew on for Bruce.
Andrew: I just wanted to touch on the tariff and trade disruptions potentially at omni and being cognizant that it's kind of hard to keep up with the tariff trade news these days, but.
Andrew: I would like to just get your perspective on the changes and how you are preparing.
Andrew: So on customer and customer discussions or are planning here would be helpful. Thank you.
Andrew: Hey, Andrew Sean Thanks for the question.
Speaker Change: You said, it's really difficult to project.
Speaker Change: Freight volumes and the revenue might be impacted.
Speaker Change: From these tariffs.
Speaker Change: I think I've said it in the previous quarters.
Speaker Change: We are pretty vast and many of the Asian countries not just China. So we're we're a lower single digit today ex China into the U S. So that trade may continue in the tariffs will have to be absorbed or those customers.
Speaker Change: Reposition out of other countries.
Speaker Change: So we don't see a major impact there.
Speaker Change: Probably closer to home, though regarding Mexico and Canada.
Speaker Change: We've got the 30 day.
Speaker Change: Kind of time out period, if you will.
Speaker Change: But at the same time, the commodities that were mentioned such as fuel energy alcohol food is not the commodities in <unk>.
Speaker Change: <unk> network. So we don't see a major impact there as well.
Speaker Change: So we feel pretty good always subject to change we are staying as closely as everybody else as to the potential of other commodities, but as we see it right now it's not a major risk to our business.
Sean Stewart: Okay, Sean. Thank you that's helpful and as a follow up.
Sean Stewart: We've heard some whether it be rumors or rumblings of a peer standing up a potential <unk> networks in competition with you all so.
Sean Stewart: What kind of just wanted to get your perspective on whether you see this happening whether it's impacting the market to date and how could you be planning or changing processes to compete in a market that's essentially becoming more competitive over time. Thank you.
Sean Stewart: Yeah sure I'll. Although this question. So you know we like competitors, it's what keeps you sharpen life and.
Sean Stewart: I would also say at the same time people that are trying to stand up a real network I wish him the best.
Sean Stewart: There is a difference in people playing in consolidation and heavy haul lanes and truly setting up a true network.
Sean Stewart: Well you know our strategy here is.
Sean Stewart: While there are competitors.
Sean Stewart: Many of whom we've worked with for years and respect a lot weaker.
Sean Stewart: Got to stay focused on our sales and differentiate ourselves through the technology. The service that we offer is unmatched, especially with our visibility tool. So our value is it just offering low rate.
Sean Stewart: Doing what tactics, they're putting in place because that only last so long, but truly more meaningful is what we do what we offer what we service and best in class.
Sean Stewart: People in the industry and we're going to stay steadfast continuing to improve day on day and offer best in class for what we truly are.
Sean Stewart: Okay.
Sean Stewart: Okay I appreciate the time I'll pass it back to the competitors it keeps us sharp.
Sean Stewart: <unk>.
Speaker Change: And we'll take our next question from Oscar Majors with Susquehanna. Please go ahead. Your line is open.
Speaker Change: Yeah, Thanks for taking my questions Jimmy.
Speaker Change: Jim you want to talk on the balance sheet, a little bit and cash flow.
Speaker Change: Do you think that business can be cash flow positive this quarter without the.
Speaker Change: Bond payment and any.
Speaker Change: Thoughts on kind of cash flow seasonality tops down as we look forward next three six months.
Speaker Change: Yeah, [noise] basket on love the way you guys always like to get me and trying to give guidance.
Speaker Change: I will politely respectfully path.
Speaker Change: Other than to say.
Speaker Change: We have about $170 million a year in interest payments between the term loan and the senior secured notes and whatever the undrawn portion of the Rcs. So it really doesn't take a lot once we get through all the transaction expenses from.
Speaker Change: The omni deal plus all the legacy earn outs plus a working capital true ups with all of the consultants that we have.
Speaker Change: Had to pay.
Speaker Change: We can see us get back to running the base basics of our business.
Speaker Change: It doesn't take a lot to be free cash flow positive, we actually demonstrated that in the third quarter of this year.
Speaker Change: And if you think about.
Speaker Change: I think I was in the second and third quarter amendments in the last call that I said will be inflicting cash flow positive in the second half of this year.
Combining that third and fourth quarters, it's exactly what we did so.
Speaker Change: We just need to keep executing is what it amounts to be we since it's an asset light business model capex isn't that much the biggest fixed cost.
Speaker Change: Interest and again, it's only about $170 million a year.
Speaker Change: And.
Speaker Change: As we think about the business and what it could be worse on some of the parts basis.
Speaker Change: Is there anything particularly different.
Speaker Change: The unlevered cash generating potential of your different segments relative to their EBITDA just wanted to think through the free cash flow and if EBITDA is representative across the segments. Thank you.
Speaker Change: I'm, so sorry back on I heard every word you said can you can you say that again.
Yeah.
Speaker Change: <unk>.
Speaker Change: So.
Speaker Change: Some of the parts basis, if we're looking at your segments and their cash flow generating potential is the EBITA both businesses representative of their free cash flow generating potential on an unlevered basis I just want understand if theres anything you made because we think about where the business generates the cash to support the debt payments. Thank you.
Speaker Change: Got you, yeah, so a little bit different between.
Speaker Change: The 40 act and the warehouse in Vas piece of our business relative to the <unk> expedited and pickup and delivery and even intermodal for that matter.
Speaker Change: I'd say to get the good news is it's not that different on the former of what I said.
Speaker Change: EBITDA is almost tandem out to unlevered free cash flow on the ladder demand given the fact that we are asset light and given the fact that we're.
Speaker Change: Very.
Speaker Change: Independent contractor centric, we don't even have that much on capex.
Speaker Change: On any given year on the billion plus in revenue that we have from the expedited segment, we spend around $30 million a year in capex.
Speaker Change: The only capex what are you really have on the forwarding side would be more along.
Speaker Change: Along the lines of technology so good.
Speaker Change: Good news is not that different between the two a little bit lower on the expedited piece.
Speaker Change: Given the detractors of trailers forklifts, and then what we do for the terminals, but pretty solid cash conversion, which we're going to start focusing in on that <unk> next.
Speaker Change: Next quarter and beyond pretty strong cash flow conversion when stood up and operating appropriately.
Speaker Change: Thank you Jeremy.
Speaker Change: And once again, if you do have questions. Please press star and one keys on your telephone keypad at this time.
Speaker Change: And we can take our next question from Stephanie Moore with Jefferies. Please go ahead. Your line is open.
Speaker Change: Great. Good afternoon, everybody. This is Joe hanzlik at Jefferies on for Stephanie more.
Speaker Change: I wanted to drill in on the expedited freight shipments per day you mentioned.
Speaker Change: Fairly consistent with what we've seen in the broader space on LPL Bose, I guess sequentially and year over year on a volume perspective.
Sean Stewart: Sean We use started you had talked to a lot of your customers in quite a lot of fears about.
Speaker Change: Customers, leaving forward with the transaction I wanted to maybe come.
Speaker Change: Come back to that thought I don't know if you've had any conversations with customers lately what have they been telling you and if we can maybe just unpack that down 9% shipments per day, how much of that is all just macro is there any movement with the changes in yield was there any movement in customers.
Speaker Change: A lot to unpack that.
Joe Hanzlik: Sure Joe So yes for.
Speaker Change: Obviously, I talk to them daily and.
Speaker Change: Not much has changed.
Speaker Change: Our legacy freight forwarder customers, obviously, where there are entrepreneurs and where they need and have the ability to build density lanes that are going to continue to do that and on the onset.
Speaker Change: With me coming to forward I said, you got to run your business I wanted to be.
Speaker Change: That continual trusted player for you and your expedited freight segment on what you can't build out on your own and so we still see that in our conversations with them.
Speaker Change: They pretty much Dallas, our business is down.
Speaker Change: Like everyone else in the market. So it's not like we're losing confidence with them.
Speaker Change: <unk>.
Speaker Change: Maybe some of them. They haven't told me that to my face.
Speaker Change: But ultimately across the board I think we're in a very good place with those legacy customers and we continue to service them extremely well and just overall were the volumes down it's because everyone's volumes now.
Speaker Change: Got it and then from a three two to four Q I guess expedited freight operating margin perspective, it deteriorated a lot.
Speaker Change: Can you guys, maybe talk about what's the focus on cost controls and a focus on pricing.
Speaker Change: What drove what was.
Speaker Change: Such a 400 basis points of sequential margin degradation.
Speaker Change: Yes, so Joe and that in that aspect you know, we talked a little bit I think in Q3.
Speaker Change: Started in Q2, but the mix and when I say the mix the difference between class base tariff and density based tariff really started to shift in mid 2024, and that's when we called out the actions in the pricing.
Speaker Change: So what was happening is the class based tariff customers, mainly our three pills and let me be clear three pills are extremely important to us. It was something that we did wrong nothing that they did wrong.
Speaker Change: We had reduced our class base tariffs astronomically.
Speaker Change: And it's not what we should have done in this type of network. So what was happening is that as a true door to door service. So when you look at the door to door with our 97% opened zip codes in the United States.
Speaker Change: It was not a good situation. So that's what we had to enact and put the first I'll say roughly 50% of the tariffs.
Speaker Change: Got adjusted at the end of November with not a lot of trade to impact December and then the remaining majority of them went into effect.
Speaker Change: Early February of 2025.
Speaker Change: So as we stated we will start to see some impact in Q1 and a full impact in Q2, we feel extremely strong and the actions that we've taken to keep as much of that volume in our network with those traditional <unk> on a class based tariff.
Speaker Change: At the same time, we can't continue to as I like to say.
Speaker Change: Do.
Speaker Change: Business with practice for practice, we have to make our margins and so that's really we have not seen a degradation from our traditional density based freight forwarder customers.
Speaker Change: At all.
Speaker Change: Alright, understood, that's really helpful and sorry, I'm going to squeeze in one more question, maybe with interest change is there any change in thinking on what that margin can kind of look like for that segment in the past and under prior <unk>.
Speaker Change: <unk> it was kind of a double kind of 10% type bogie almost as change in how you guys are looking at the business of that kind of fundamentally changed maybe what margin you guys are looking to achieve in this segment or is there any any way of how you guys are thinking about that.
Yes, Joe again.
Speaker Change: Loved the bread crumbs to particularly trying to give guidance.
Speaker Change: What are what I would say is if you go back and look at the last three quarters of 'twenty four.
Speaker Change: It was basically almost double what it is now you go back in 'twenty.
Speaker Change: 2023.
Speaker Change: Mid teens, yes, let me give you a very salient.
Speaker Change: Data point relative to where we ended on page 17 of the presentation, you'll see we ended the fourth quarter at six 6%.
Speaker Change: And if you just kind of go down where our peers are ended the quarter.
Speaker Change: You're in the mid teens to almost 20% EBITDA margin.
Speaker Change: I mean, this with as much respect as I can muster having spent a long time at a lower service provided LDL carrier or network.
Speaker Change: Is better than those peers that are that I, just spoke to and our level of service is better than those peers and our claims ratio is better than those peers. So.
Speaker Change: In terms of where I think you said what should it look like.
Speaker Change: And then I can tell you what I think it should look like I'll tell you what it was and where our peers are and I think we're better.
Speaker Change: Fantastic answer thank you so much for the time.
Speaker Change: And we will take our last question today from Christopher Combe with Benchmark Company. Please go ahead. Your line is open.
Christopher Combe: Yes, hi, good afternoon, guys. Thanks for the question.
Christopher Combe: Can you maybe talk about some of the drivers of the omni business in the quarter.
Christopher Combe: Benefit at all from the surge in import volumes that we saw.
Christopher Combe: How should we think about it for next year.
Christopher Combe: Yeah.
Christopher Combe: I'll jump in there, Chris and then let Sean that cleanup.
Speaker Change: I'd say three things.
Christopher Combe: <unk>.
Christopher Combe: One did see an increase in air volume did see an increase in ocean volume offset by candidly, a pretty soft pricing environment in both of those verticals.
Christopher Combe: But you add to that what's also an omni.
Christopher Combe: It is a very strong warehouse in vas operation that has Ah.
Christopher Combe: Pretty good exposure to tech clients and customers that are just literally.
Christopher Combe: Italy.
Christopher Combe: Knocking the cover off the ball.
Great portfolio investment Chris in terms of you know you want to invest in the transportation space.
Christopher Combe: This is a pretty damn good one if you want exposure across the spectrum of different services, but I'd say, it's a little bit of air a little bit of ocean offset by net volume that is offset by a slightly softer a rating environment.
Christopher Combe: But also supported by strong warehouse advantage operations.
Christopher Combe: Yes, Chris I would add we continue to.
Christopher Combe: As we've integrated the networks.
Speaker Change: I would say they are our legacy omni teammates.
Speaker Change: No the four capabilities much more than they did prior to and what I mean by that is there's a lot of different ways of thinking of how best to use for both in truckload and in <unk>. So from our solutions and in penetrating customers in regards to our solution selling.
Jamie Pierson: Theres, some theres, some uptick there as well, but jamie's right.
Jamie Pierson: Very big contract logistics operations and the high Tech space.
Jamie Pierson: That did extremely well on their omni segment.
Jamie Pierson: And we did see an uptick in both our air and Ocean segments for sure.
Speaker Change: And Chris I would actually point you to slide 18 at the material and it's kind of followed the progression of omnis performance since the acquisition.
Jamie Pierson: Okay.
Jamie Pierson: It's improved by a couple of hundred basis points every single quarter.
I think there's a in my opinion at least the market checks that I've heard in their unsolicited by the way.
Speaker Change: There is a misperception in the market on the omni if.
Speaker Change: If you look at this page it is performing very well within a couple of hundred basis points of some of the best competitors in the space. So operationally its performing very well the only thing that you know, we're really spending a fair amount of time on is just the integration of the back office operation operationally, it's finding its stride.
Speaker Change: Okay, Great and then I know you don't want to talk too much about guidance, but I mean, as we think about the expedited freight in the pricing strategy.
Speaker Change: Can we should we think about limited buying girls more pricing.
Speaker Change: Is that the case can you get margins in that business, if the volumes are pretty weak.
Speaker Change: Well, if you isolate it to expedited AE our expectations are that we will see.
Pricing or yield improvement as we go throughout the year, especially on a comparative basis.
Speaker Change: I think Sean I don't think I know Shaun said in his prepared remarks.
Speaker Change: We are shedding some unprofitable volume.
Speaker Change: Man I did have a very protective of our network and John said, it very well, we don't need the practice we.
Speaker Change: We don't need to be carrying a negative margin freight on our expedited network. So in terms of what historically has happened when you you've pushed on on price and yield and pushing those areas. Yes, you can I think that it would be reasonable to see some volume decline.
Speaker Change: The opposite is also true.
Speaker Change: We're already seeing the benefit of the yield.
Speaker Change: By the way Tony to almost three weeks away from it being implemented in total.
Speaker Change: So it's too early to tell we got to focus on right sizing the network in terms of the bottom line, but I would I would agree with you in terms of higher yields.
Speaker Change: Softer volumes.
Speaker Change: But that doesn't mean, Chris that we I don't have a high expectation of growth by our team so whether.
Speaker Change: Whether it's.
Speaker Change: Keeping the volume are replacing the volume that's what we're going to do in 2025. So.
Speaker Change: You know we have the ability I don't want to do it but we have the ability. If we don't have the volumes. We can take we can take cost out of the network for sure.
Speaker Change: But that's not what I want to have to be forced to do we got to grow and Thats our focus.
Speaker Change: Okay got it. Thank you guys calculator appreciate it thank you.
Speaker Change: And we'll take a follow up question on the line from past <unk> majors with Susquehanna. Please go ahead. Your line is open.
Speaker Change: Thanks for letting me back Ken just to your earlier comments on some of the different businesses with my mom and now that we're almost a year into ownership can you talk really high level about some of the exposures are and how it generates profits between transactional are transactional ocean and some of the warehouse.
Speaker Change: <unk> value added services and customs brokerage.
Speaker Change: Yeah.
I'll jump in there and then again, let Sean correct me, where I'm wrong.
Speaker Change:
Speaker Change: As we've said and we're going to stop saying Thats pretty soon backbone is it is a collection of 12 companies.
Speaker Change: Have a very strong positions in their individual verticals.
Speaker Change: In terms of generating profit.
Speaker Change: You've got the air forwarding you got the Ocean forwarding, you've got warehouse you've got customs.
Speaker Change: Brokerage and value added services.
Speaker Change: So it is a like I said earlier, it's a great portfolio of exposure to the space.
Speaker Change: I think the real value that's going to come out of this is once we integrated the networks in their first quarter of 2024, you saw how that performance stepped up.
Speaker Change: It is very.
Speaker Change: Astute in terms of correct me when I say that you would expect some softer volume I mean that in the very immediate future on a longer term basis by the end of 'twenty five as you go through 'twenty five.
Speaker Change: I would expect the volumes to start to actually recover and more to come 24 was an investment year 25, we have the foundation in place we will do that for the first six months to nine months and then at the end of 2002nd half of 'twenty five 'twenty six.
Speaker Change: When I really expect that growth to start kicking in so basketball I'll say I'll say it this way and Jim you did a good job.
Speaker Change: Those 12 companies have a multitude of those offerings in them. So we spent most of 2024 moving segments closing entities enrolling them into certain entities. So then in 2025, we can start coming to you guys are at.
Speaker Change: A later date.
Speaker Change: Speak for Jamie and his team, but at a later date, because I really want to report out to you guys in that ground air Ocean contract logistics and custom groceries brokerage segments. So you guys really have an understanding on this side of what's what's doing well and what's maybe not doing so well and is that in line with the market et cetera.
Speaker Change: So more to come back on that.
Speaker Change: No that's helpful and we look forward to that.
Speaker Change: To your last point about integration driving volume I don't know if.
Speaker Change: Eric is on the call your Chief commercial officer, he's been there two and a half months, but would love to hear.
Speaker Change: Any early thoughts from from him on what he sees as opportunities to really move to offense like you've said a few times today.
Speaker Change: Basketball him he is not in the room, but surely happy to have him come on at a later date, if that's warranted, but he's actually in the room here.
Speaker Change: Here in our headquarters with.
Speaker Change: His top leadership and the top sales reps from around North America.
Speaker Change: During the strategy session.
On the new go to market strategy, So that's exactly where all of them.
Speaker Change: Let me share more as he gets really go in here and is early stages and we would never exposed someone that new to you guys in this process.
Speaker Change: Thank you for the time guys appreciate it.
Appreciate you.
Speaker Change: And there are no further questions on the line at this time I'll turn the program back to Mr. Stewart for any final remarks.
Speaker Change: Alright.
Speaker Change: Listen I want to thank you guys. So much everyone for joining today really look forward to 2025.
Speaker Change: I look forward to connecting with each of you soon.
If you have any follow up questions. Please reach out to Tony.
Speaker Change: Have a great one take care.
Speaker Change: This does conclude todays forward air fourth quarter and full year 2024 earnings conference call. Please disconnect. Your lines at this time and have a wonderful.