Q1 2025 Forward Air Corp Earnings Call
Speaker Change: Welcome to the Forward Air's first quarter 2025 earnings conference call. At this time, all participants have been placed in a listen-only mode.
Speaker Change: 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 the star and one on your telephone keypad. If at any point your question has been answered you may remove yourself from the cube by pressing star and two.
Speaker Change: So others can hear your questions clearly. We do ask that you pick up your handset to provide best sound quality. Lastly, if you should require operator assistance, please press star and zero. I would now like to turn the call over to Tony Carreo, Senior Vice President of Treasury and Investor Relations .
Tony Carino: Thank you operator and good afternoon everyone. Welcome to Forward Air's first quarter of 2025 Rene's conference call.
Speaker Change: with us this afternoon, our Shawn Stewart Chief Executive Officer, and Jamie Pierson Chief Financial Officer.
Speaker Change: By now, you should have received a press release announcing Forward Air's first quarter 2025 results, which was also furnished to the SEC on Forma K. We have also furnished a slide presentation that line in first quarter 2025 earnings highlights and a business update.
Speaker Change: Both the press release and slide presentation for this call are accessible on the Investor Relations section forward air's website at forwardair.com
Speaker Change: Please be aware that certain statements in the companies or any release announcement and on this conference call are for looking statements within the meaning of the private security litigation reform act of 1995.
Speaker Change: 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 2025.
Speaker Change: These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause extra results differ, but entirely from those expressed or implied by such forward-looking statements.
Speaker Change: For additional information concerning these risks and factors, please refer to our followings with the Securities and Exchange Commission and the press release and slide presentation relating to this earnings call.
Speaker Change: Listeners are cautioned not to place and do influence on these four-looking statements
Speaker Change: which speak only as of the date of the call. The company takes no obligation to update any four-looking statements, whether as there results have 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 US generally accepted accounting principles or gap.
Speaker Change: Management uses non-gett measures internally to understand, manage and evaluate our business and make operating decisions.
Speaker Change: Definitions and reconcilations of these non-GAB measures to their most directly comparable GAB measures are included in today's press release and slide presentation. I will now turn the call over to Shawn.
Good afternoon everyone.
Shawn Stewart: Before I get into the substance of today's call, I want to take a moment to thank our customers for their trust and loyalty during this unprecedented time in the global logistics market.
Shawn Stewart: We have always prided ourselves in solving our customers problems and is during these times when we can add the most value to their supply chains.
Shawn Stewart: So with that, thank you. I appreciate you entrusting us with your business
Shawn Stewart: I also want to thank our employees around the world for their dedication to meeting our customers needs on such a consistent basis. Our employees set this industry standard for exemplary service and commitment to best in class service.
Shawn Stewart: to our shareholders and lenders. Thank you for investing your time and money in our company.
Shawn Stewart: We communicate with you on a regular basis and I sincerely appreciate your belief in our team and in the transformation journey that we are on.
Shawn Stewart: As you have heard from us in the past, we are committed to increasing transparency into our business we are committed to increasing transparency into our business
Shawn Stewart: We are excited to share our new investor slide presentation that matches how we view the new combined business which also provides direction on how we intend to report on the business by the end of the year.
Shawn Stewart: Continuing on the theme of transparency as we look to the remainder of 2025 and into 2026
Shawn Stewart: We expect to have fully integrated the two legacy companies and be progressing down the path of transforming the company from a tangled web of global legal entities.
Shawn Stewart: with multiple and sometimes duplicative technology systems to a more streamlined entity with the appropriate level of support and simplicity to grow the business.
Shawn Stewart: With this backdrop, our goal is to double the business over the next five years, going from the 2.5 billion revenue entity that it is today to 5 billion.
Shawn Stewart: Obviously, that assumes that we return to a normal freight environment and the macro headwinds do not persist for an extended period. While we are in uncertain times, what is certain is the tremendous opportunity we have ahead
Shawn Stewart: It is an exciting time to lead our company as we continue to transform Forward Air into a global logistics leader.
Shawn Stewart: With that, I want to cover three topics on today's call. First, review our first quarter consolidated results.
Shawn Stewart: Second, share an update on the actions to improve the expedited freight segment. And third,
Shawn Stewart: Provide an overview of ourselves by service and by region before turning the call over to Jamie to cover the financial results in more detail.
Shawn Stewart: Starting with the results, we had a solid quarter and reported a consolidated EBITDA of $69 million compared to $63 million a year ago. On a sequential basis, the results are consistent with the $69 million we reported in the fourth quarter of last year.
Shawn Stewart: With the year-over-year improvement, the last 12 months consolidated EBITO was 313 million.
Shawn Stewart: Importantly, we generated positive free cash flow during the force quarter and increased liquidity by $11 million to $393 million.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Shawn Stewart: Second, a key area of emphasis has been on correcting the previous pricing strategies at the expedited freight segment that focus more on growth than profitability.
Shawn Stewart: As previously communicated, we began taking corrective pricing actions during the fourth quarter of 2024 and finished implementing the improvement strategy in February of this year [inaudible]
Shawn Stewart: We're pleased to share that in the back half of the quarter, we began to see the improvement that we were anticipating [inaudible]
Shawn Stewart: As expected, and shared on the last earnings call, we shed some of the poorly priced freight from our network as a result of our pricing actions which leads to some additional capacity in our network.
Shawn Stewart: What is incredible was the team's ability to cut cost in line with the decrease in volume on an almost real-time basis which led to a 10.4% reported even a margin for the quarter. Up almost 400 basis points from last quarter.
Shawn Stewart: I have been very clear that it usually takes months to rectify a single poor pricing decision and shedding unprofitable freight is part of the process [inaudible]
Shawn Stewart: While we all know that there was additional opportunity in the expedited freight segment's margin, I am very proud of how our team reacted and handled a very difficult situation, especially when you consider the incredible volatile environment in which they did it in.
Shawn Stewart: This quarter's results affirm my view that the fundamentals are intact.
Shawn Stewart: The Expedited Freight Segment includes one of the largest expedited LTL networks in North America and is an industry leader in serving time critical and high value freight. [inaudible]
Shawn Stewart: We believe the quality of service we provide will be the driver of customer retention, growth, and ultimately pricing and profitability
Shawn Stewart: The third topic is providing additional detail on our revenue both in terms of service provided and customer region.
Shawn Stewart: With the first year as a combined company behind us, we plan to go to market and eventually transition to reporting our financial results by service as we move away from the legacy legal reporting structure.
Air in Ocean 40, Intermodal Dreads,
Warehousing and Value-Edit Services
Shawn Stewart: Based on our 2024 consolidated revenue, approximately 70% of our business was attributable to ground transportation business in North America across our legacy forward and omnibus
This includes less than truckload, pickup and delivery, truckload brokerage services.
Shawn Stewart: Approximately 12% of our 2024 revenue was from air and ocean forwarding with another approximately 9% from our Intermodal Drayage business.
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Shawn Stewart: The final product category is warehousing and value-added services, which also is approximately 9%.
Shawn Stewart: Supplementing these products is our customs brokerage that we're able to integrate as needed.
Shawn Stewart: You can see the summary of the product breakout on pages seven and eight of the slide presentation issue today.
Shawn Stewart: As for our revenue by region, utilizing 2024 calendar year customer billing data, we estimate that approximately 88% of our revenue is attributable to customers' build in the United States.
Shawn Stewart: Another estimated 7% of our revenue is from customers build in Asia-Pacific region, while approximately 4% is from customers build in North, Central and South America, excluding the United States.
Shawn Stewart: Finally, less than 1% of our revenue is from customers built in Europe , the Middle East, and Africa.
Shawn Stewart: You can see a summary of the estimated revenue by region on page 9 of the slide presentation.
Shawn Stewart: Please note that we do not have information on our customer shipments points of origin, especially as it pertains to our intermodal segment.
Shawn Stewart: In pursuit of continuing to improve the transparency of our disclosures, I hope you find the additional information helpful to you understanding of what is combined business is capable of.
Shawn Stewart: When you combine the services we offer with our global reach, we believe Forward Air is uniquely positioned and it separates us from the competitors and sets the stage for growth.
Shawn Stewart: We have more than 250 facilities in 21 countries and can offer our customers one-stop shopping and single point of contact with end-to-end international services for specialized products.
Shawn Stewart: As we look ahead, I am very excited about our sales opportunities to drive growth and margin expansion .
Shawn Stewart: With that, I will now turn the call over to Jamie to go through the results for the first quarter [inaudible]
Thanks, Shawn, and good afternoon everyone.
Jamie Pierson: As Shawn already stated, we reported solid results in the first quarter of this year with 613 million revenue, which was at 13.2% or $71 million increase on a required gap basis as compared to the first quarter of the prior year.
Jamie Pierson: The good news is that this is the last time that I might have to say that as next quarter will be our first fully comparative period.
Jamie Pierson: However, back to the point, and on a more sequential and comparative basis, consolidated revenue decreased 3.1% or 20 million from 633 million to fourth quarter last year to 613 million
Jamie Pierson: As for our three reporting segments, expedited freight, omniligistics and intermodal,
Jamie Pierson: Revenue to expedite and freight decreased 24 million or 8.8% to 249 million from the previous year's comparable quarter of 273 million.
Jamie Pierson: The decrease was driven by 10.9% decrease in year-to-year tonnage per day and one less business day in the first quarter of 2025 compared to the first quarter of 2024 2004.
Jamie Pierson: and that was partially offset by 2.5% increase in revenue per honeyweight excluding fuel. You can see the revenue per honeyweight by quarter on slide 14 of today's presentation.
Jamie Pierson: The 2.5% increase outperformed the LTL Industry average on a year-to-year basis as did the 4.3% sequential increase from the fourth quarter to the first quarter. The 2.5% increase outperformed the LTL Industry average on a year-to-year basis
At Army Logistics [inaudible]
Jamie Pierson: Revenue in their first quarter increased by $99,000,000 to $323,000,000 compared to the $224,000,000,000 year ago. Again, the increase was primarily due to the 24 days of less ownership in 1224 compared to 1225.
Jamie Pierson: More relevantly, however, on a sequential basis, the first quarter revenue of 323 million was essentially flat to the fourth quarter of 2024 revenue of 326 million.
Jamie Pierson: Revenue in the Intermodal segment in the first quarter increased 6 million or 11% to 62 million compared to the prior years comparable 56 million.
Jamie Pierson: The increase was attributable to a 7.4% increase in revenue per shipment and a 2.9% increase in the number of trade shipments.
Shawn Stewart: As you heard from Shawn, consolidated Ibadal as defining an accredited agreement with 69 million or 11.2% margin compared to the 63 million or 10.2% margin on a performer basis a year ago.
Shawn Stewart: With the omnifosition closing in the first quarter of last year, there were a ton of transaction-related expenses and as promised, we are now seeing the quality of earnings improved compared to the last year's comparative period we are now seeing the quality of earnings improved compared to the last year's
Shawn Stewart: To that end, and as usual, we have detailed the information used to build up the consolidated EBITDA results on page 28 of the presentation.
Shawn Stewart: Turning to cash flow, cash, and liquidity, we reported 28 million in positive cash flow from operations in the first quarter, which was a $79 million improvement compared to the 52 million of cash used by operations a year ago.
Shawn Stewart: On a sequential basis, that same $28 million in positive cash flow from ops in the first quarter is a $51 million improvement compared to the $23 million in cash used by operations in the fourth quarter of last year.
Shawn Stewart: As for liquidity, we ended the fourth quarter with almost $400 million in total liquidity.
Shawn Stewart: Specifically, 393 million, which was comprised of 116 million in cash and 277 million in availability
Shawn Stewart: This represents an $11 million improvement compared to the end of the fourth quarter of last year [inaudible]
Shawn Stewart: And as usual, in convention with my past practice, I would like to leave you with a few additional thoughts for the quarter.
Shawn Stewart: The first of which is an update on our consolidated personally net leverage ratio.
Shawn Stewart: as one of the only financial covenants in our credit facility. Net debt consolidated LTM was 5.3 times compared to a maximum allowable level of 6.75 times.
The Good New Deal
Shawn Stewart: Both cash and LTM consolidated EBITDA were up sequentially, which led to a $66 million cushion at the end of the quarter. This is an improvement of $7 million when compared to the $59 million of implied cushion at the end of the fourth quarter of last year. [inaudible]
Shawn Stewart: 0.2 is our continued focus on cash conversion and liquidity.
Shawn Stewart: Cash, Low From Ops, and Dust Cash, increased quarter-over-quarter leading us again with a little less than $400 million in total liquidity at the end of the quarter.
Shawn Stewart: Given our cash flow performance and our current 393-month in liquidity, we believe we're in very good shape today.
0.3 as provided by Shawn in his opening remarks.
Shawn Stewart: You now have an overview of our sales by service and by region around the world.
Shawn Stewart: We know that you've been asking for more details on what the combined company looks like, and I think this quarter's earnings presentation is a huge step in that direction.
and as for the potential impact of Terrace.
Shawn Stewart: I'm going to steal a line from one of my peers and say that you would have to be an austrodomist to actually know what the future holds.
Shawn Stewart: However, we do not believe that we're overly exposed to any one region around the world outside of the United States
Shawn Stewart: with approximately 1% of our 2024 revenue coming out of customers build in mainland China and are approximately 5% from customers building a Hong Kong.
Shawn Stewart: In my opinion, the real impact of tariff will not be from the inflationary impact of the tariff themselves, but rather the impact the headlines have on consumer confidence and the downstream impact purchasing has on volumes.
Shawn Stewart: and given the daily news out of Washington, including this weekend, we may not know what those impacts may or may not be for another 60 to 90 days.
Shawn Stewart: Finally, as everyone knows, we filed an 8K on January the 6th, indicating that we are launching a strategic alternatives review process.
Shawn Stewart: Since the announcement, we have completed a significant amount of work with our advisors and have recently commenced discussions with potentially interested parties.
Shawn Stewart: There is no guarantee that we will enter into a transaction of any kind and do not plan to update the market on the details of the process as it progresses.
Shawn Stewart: Until then, just know that we will continue running the business and providing the same best in class services and solutions as we did before and plan to provide in the future.
Shawn Stewart: I will now pass the mic over to Shawn for closing comments before Q and A.
Shawn Stewart: Thank you, Jamie. I will wrap up our comments with a focus on the remainder of 2025 and early 2026. Right now, some market participants are narrowly focused on either last quarter's historical results or even the current quarter's tariff results.
Shawn Stewart: As for our company, and more specifically our leadership team, we are focused on our employees and our customers knowing that if we get those right, they will take care of our shareholders.
Shawn Stewart: In closing, I would say that in the face of a very challenging industry and equally volatile macro environment, our team has made tremendous progress since the transaction closed [inaudible]
Shawn Stewart: As you have heard us say before, we do not expect progress to be linear. However, we also do not intend to let the recent market noise slow us down as we look ahead and focus on the rest of the year and into 2026
Shawn Stewart: Either the investments have been made or the plans have been developed and are in process of being implemented and I remain confident in our ability to execute our strategy, grow the company and enhance shareholder value. Thank you.
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Shawn Stewart: Finally, before we begin the Q&A, I want to acknowledge the public disclosure this morning from one of our investors.
Shawn Stewart: As you just heard from us, the board and management team are entirely focused on taking deliberate actions to maximize shareholder value.
Shawn Stewart: The board is actively engaged in leading the strategic review process, which as we noted is underway, and the continued oversight of our transformation strategy.
Shawn Stewart: We firmly believe that all of our directors are vodeled to these efforts [inaudible]
Shawn Stewart: We look forward to filing our definitive proxy materials in the coming days.
Beyond that...
Speaker Change: We're not going to comment any further, and we ask that you keep your questions focused on our earning results. I will now turn the call over to the operator to take questions operator. Thank you operator.
Speaker Change: The floor is now open for questions. At this time, if you have a question or comment, please press the star and one on your telephone keypad. If at any point your question is answered, you may remove yourself from the cube by pressing star and two.
Speaker Change: Again, we ask that you pick up your handset when posing your questions to provide for optimal sound quality Our first question is coming from Bruce Chan with Stiefel Please go ahead, your line is open
Speaker Change: , , , , , , , , , , , , , ,
Andrew Cox: Hey, good afternoon team, this is Andrew Cox on Pobrous [inaudible]
Andrew Cox: You know, appreciate the consolidated revenue breakout here and understand the...
Andrew Cox: The problem, some of the shipments and intermodal, but we just wanted to kind of get a sense of, you know, we felt that expedited might have a little bit more exposure to international and markets than maybe some of the, you know, LTL peer set. And we just kind of wanted to know if you felt that was a fair statement and, you know, if you could.
Andrew Cox: Give an estimate or give some color on, you know, how much of that the revenue in that division or volume however you want to discuss it may be tied to and bomb China or Asian volumes thank you.
[inaudible]
Shawn Stewart: Andrew the Shawn, it's a great question. So when we gave our guidance on the 10 to 15 percent
Speaker Change: It's actually below 10 and we've put in a buffer. You know, we don't always know in the expedited L.T.L. because it's coming out of a U.S. D.C. mainly. We don't know where its original country of origin was.
Speaker Change: And so that's that's an unknown to anybody in the space.
Speaker Change: So we put in a buffer to kind of who we know, if we know the customer and if we know they're importing and that's where we get it from but it's a it's a pretty good coverage. I can't say it's 100% scientific but it's a pretty good coverage of that exposure.
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Okay, thank you. That's helpful. And as a follow-up here...
You know there's been
Speaker Change: and maybe if you have any detail, what categories or divisions have you seen it in, and are you baking it an air pocket potentially coming through starting here soon? Thank you.
There was quite a bit of significant uptick [inaudible]
Speaker Change: But we don't know how much of that was truly a pull forward [inaudible]
Speaker Change: versus just projects, seasonality projects that we had hit. And it wasn't just us, it was some of our indirect customers as well through our network that had the same project. So I can't really comment.
Speaker Change: that it was so much of a pull forward, but I can tell you I hope there's more coming in Q2.
For more information visit www.FEMA.gov
So we are. Thank you
Speaker Change: We'll take our next question from Stephanie Moore from Jeffries. Please go ahead, your line is open.
Good afternoon. Thank you Thank you.
Speaker Change: I wanted to touch on the pricing performance within expedited for the quarter.
Speaker Change: Maybe to try and make it kind of a better understanding of the run rate as we go through the rest of the year.
Speaker Change: If it looks like, you know, very strong yield performance in one queue and benefiting from the corrective actions that you've taken, but how much just given the timing of those actions, which I think you called out didn't fully get implemented at the end of the first quarter, so as you look at. [inaudible]
Speaker Change: The Run rate for the first quarter. Should we then expect a bit of a step up in 2Q and then for the rest of the year as those actions kind of fully take hold? Thanks.
Hi, Stephanie, and welcome back.
Um, yeah so-
Speaker Change: The pricing actions, it's kind of a, it's a double-edged sword. So the pricing actions that we took in regards to our class-based tariffs are solid and we're seeing the necessary results and just for a context of
Speaker Change: of The Timing. The final action was February 6th and so we basically have half of February and all of March. So let's just say half of the quarter was impacted if that helps you.
Speaker Change: In regards to, you also lose some volume, although more of our volume declination was the overall market and not just from our pricing actions.
Speaker Change: So what you heard in my opening was we also have to make sure that we are reducing the cost of the network and optimizing that network based on volume, whether it be by customer declination.
Speaker Change: or pricing actions that we choose to take. So it's not just about pricing, it's also about how we adjust
Speaker Change: Our network and our modeling from an optimization standpoint to bring the cost down when the revenue is not there. So it's a double-edged sword in how we really control that from making sure that we're bringing the most margin into the organization as possible with those actions. [inaudible]
Speaker Change: Stephanie Jamie, if I can add, since the previous pricing action that led to this situation was taken in late 2023,
Speaker Change: 2024 should be all else being equal, a fairly easy comp, so you compounded the fact that what Shawn said about you know, only this only half of the impact.
Speaker Change: was captured in the first quarter with the fact that that piping action happened on late 23 carried throughout most of 2024.
Speaker Change: I would anticipate fairly easy comp. That doesn't mean that we shouldn't do better, but just based on a year-to-year basis, we should see fairly good performance.
Speaker Change: Got up and then got it and then just maybe touching on the margin expectations for this year. You know, look, I think you know Jamie Shawnee both have talked about the opportunity to continue to improve the expedited margin profile and kind of compare it to other LPL peers, but can you talk a little bit about what we should expect in terms of an OR improvement expected in 2025?
http://TheBusinessProfessor.com
Speaker Change: Yeah, well, definitely what I would say on that is if you look at page 25
Speaker Change: I'm on the slide. You're on the slide. I'm on it. Yeah.
Speaker Change: You know, if you think about a $1 billion business on the LTL side of the house being a $1 billion business and if you just do simple math
Speaker Change: You know the average is 18 and a half, we're at nine eight so that's about an you know 8.7% gap and then if you go back even you know five to seven years ago not not reason I'm leaving COVID out for a very specific reason.
Speaker Change: We were at that 15 to 17% range. So this network and this company is capable of hitting them they have. It's not that there is cable but we actually have hit these numbers before.
Speaker Change: and I don't mean this offensively to our peers, but I think we have a far superior service and product offering, so there's no reason why we shouldn't be at least average.
Speaker Change: And you know as well as anybody else how the operating leverage works in this space. So from my perspective, and we need to be disciplined on pricing and simply add volume to the network. We've created space in the network space that already existed in the network. So now going forward if a <unk>.
Speaker Change: This appropriately there is no reason why every income mental dollar shouldn't have that additional operating leverage included.
Speaker Change: So we've just got a group company.
Speaker Change: The network is good the pricing is solid.
Speaker Change: The service and solution is solid we just got to grow.
Speaker Change: Understood. Thank you for the time.
Speaker Change: Okay.
Speaker Change: We will take our next question from Scott Group with Wolfe Research. Please go ahead. Your line is open.
Speaker Change: Hey, thanks.
Speaker Change: Any chance you can give us the monthly tonnage trends throughout the quarter in April and I, just want to make sure I'm getting the message right just near term right. We've got a few.
Speaker Change: Oh got it full quarter benefit of the pricing actions in Q2, so that'll help.
Speaker Change: There's this sort of.
Speaker Change: Import clear for whatever you want to call it that I imagine impacts the airport to airport business. So sort of do you think we should expect to see sequential improvement in expedited revenue in margin and earnings in Q2 or is that.
Speaker Change: Too much to ask I don't know.
Speaker Change: Oh of course, there's too much to ask Scott, but I wouldn't expect anything other that from you and I mean that lovingly. So the way I would answer that is if you look at <unk> 25 is it based on if we can anchor Scott on <unk> 25, what we're seeing are similar trends as our peers as they had pre released.
Speaker Change: And what historical patterns would imply which is very directly a little softer in April April and a little stronger in may relative to April. So it's following similar trends to what our peers are pre released too and also similar trends to what we've historically performed at.
Speaker Change: Right now we are prioritizing and myopically focused on the broader transformation plan and our longer term profitability of the company and I mean this is a last quarter is in the rearview mirror. The current quarter is turbulent. It's noisy is full of headlines than it is.
Speaker Change: It really actual performance.
Speaker Change: And we're focused on making really this is a necessary investment.
Speaker Change: And the decision to fundamentally improve the operating characteristics of this company, especially in the back half of this year moving into 2026.
Speaker Change: I think I can speak for the entire E. L. T is that we're looking forward to put in points on the board and reporting our results in the next quarter here in a few short months.
Speaker Change: Okay.
Speaker Change: And then I think you had a comment that $2 5 billion of revenues growing to $5 billion of revenue is that an organic comment or is that or is there. Some assumption of the M&A and then just like the other like strategic question.
Speaker Change: This.
Speaker Change: To me this talk about bonded warehousing is somewhat new just how big of a market is it how big of a business isn't for you and like do you have any color you can share because I think it's interesting to the market overall is the activity in these bonded warehouses like going through the roof right now or is it sort of just business as normal.
Speaker Change: So yes, a lot so I would say, yes organic expansion by strengthening and scaling our customer relationships are also promoting we haven't done a great job in cross selling of our products and services across the the current and future customer base.
Speaker Change: Meaning giving all of our services are not just selling one service that we were in the previous legacy companies.
Speaker Change: And obviously driving our sales force effectiveness and improve their pipeline. So that's that's really.
Speaker Change: The main areas that we see taking it from where we are today to two that $5 billion in five years, Yes to answer your next question bonded warehouses and foreign trade zones in the United States are going.
Speaker Change: Going to be very important arm important today and even more important tomorrow.
Speaker Change: So where we have our bonded warehouses today and fairly good coverage around the United States. We are in the process right now of expanding our foreign trade zones in those bonded warehouses to further ticket a strategic advantage to the market and based on what our customers needs are.
Speaker Change: Well do you have any can you give us any perspective, how big is this business for you like how rapidly as are growing right now.
Speaker Change: I can.
Speaker Change: I would be.
Speaker Change: <unk>.
Speaker Change: Look at my finger and hold enough to catch the wind so.
Speaker Change: It's not fair to really comment on that one.
Speaker Change: Okay alright, thank you.
Speaker Change: We'll take our next question from Baskin majors with Susquehanna. Please go ahead. Your line is open.
Baskin Majors: Okay. Thanks for taking my questions to follow up on some of the mix disclosure here Oh within that 12%.
Aaron Ocean: Aaron Ocean forwarding can you give us a rough breakdown between.
Aaron Ocean: The air and the Ocean contribution and if we look at that plus the warehousing value add as really the legacy hanmi contribution to that call. It 60 40 Air Ocean.
Aaron Ocean: Warehousing value add on the revenue topline how does the bottom line contribution.
Aaron Ocean: For from that 60 40 split thank you.
Aaron Ocean: Yes, that's something we're just trip. Additionally, we're putting our toe in the water on this one we're going to start with revenue by the time, we get into the year, we intend to actually continue to increase those disclosures.
Speaker Change: Right now to say that what the kind of break apart air Ocean and warehouse and Vas outside of what we've already disclosed we're not prepared to do so I would say I agree with your direction of areas, a little bit bigger than ocean within that segment, but I.
Speaker Change: I think everyone's very well aware of what's going on with our warehousing operations relative to the volume on ocean in particular and air.
Speaker Change: Thank you for that.
Speaker Change:
Speaker Change: And.
Speaker Change: I appreciate the guidance.
Speaker Change: Guidance approach here, but.
But we really don't have a baseline of what seasonality looks like in the combined business.
Speaker Change: Could you just give us a high level view of.
Speaker Change: What a normal and of course is anything but normal environment.
Speaker Change: Directionally look like and some of the broad stroke business lines in a typical <unk> and I guess, we can do our own work on where we think it might diverge for what's happening. Thank you.
Speaker Change: What you just said it for me.
Speaker Change: Basketball, but.
Speaker Change: Seasonality is I think out the window, but if we went typical.
Speaker Change:
Speaker Change: Your Q1 is usually lower than the other three quarters.
Speaker Change: In a normal calendar segment.
Speaker Change: You know you and with you in Q1 with the strong March typically.
Speaker Change: You usually start off Q2 with a light April with an improvement in the following quarters I mean, the following months.
Speaker Change: So.
Speaker Change:
Speaker Change: You know typically you're.
Speaker Change: Q2 was a little lighter Q3 to Q4 ended up ramping up.
Speaker Change: The end of the year. So that's typical but I think were anywhere from typical what what we don't have the crystal ball on is yes, we've got the 90 day reprieve, what's that going to do.
Speaker Change: We did see a large destocking what did it get to like 14%.
Speaker Change: <unk> on their Destocking yeah.
Speaker Change: <unk> two all this tariff conversation.
Speaker Change: Our sources are now telling us that's probably back up to the levels that post COVID-19 23 levels. So a lot of forward stocking coming back in.
Speaker Change: So we just don't know.
Speaker Change: Jamie and I look at consumer confidence is probably the main kpis because how those consumer confidence all else is just kind of a.
Speaker Change: Feed to that so that's what we're going to continue to watch it as the consumer confidence starts to come back up I think things, especially for you as an analyst.
Speaker Change: Should start to trigger some some positive things to come but I think we're going to have to see some more of that bet on and by the way nor.
Speaker Change: Normal who knows but if you just look at pages.
Speaker Change: I would say 13 16 into 17 and the materials, you'll see the shape of the curve.
Speaker Change: I'm going to work backwards on this 117 as intermodal is that compares dispenser you hit the button $10 million comes out.
Speaker Change: You look at 16 on omni going into the beginning of 2024, there's probably some transaction related what I'd say headwinds there, but the shape of the curve there looks about right and then on 13 for expedited freight we all know the <unk> shouldnt be that low.
Speaker Change: So if you were to extrapolate a little bit better fourth quarter that probably is not too dissimilar to what I would say outside of a tariff related industry in a weak freight environment would be probably not too dissimilar to what I would expect.
Speaker Change: Thank you both.
Speaker Change: We will take our next question from Christopher.
Speaker Change: With benchmark. Please go ahead your line is open.
Speaker Change: Yes, hi, thanks for taking the question so it sounds like so in an expedited the volume decline I think you said was largely due to the mark to the market some.
Speaker Change: This is due to that shedding a poorly priced freight do you can do you expect that to continue as the year progresses or how did you said most of that phrase.
Speaker Change: I think I think most of it.
Speaker Change: Chris is a shed.
Speaker Change: We've been in we've been in further dialogue with some of those customers on <unk>.
Speaker Change: Some revisit not that were change in pricing, but.
Speaker Change: Just to continue the conversations.
Speaker Change: And the need if their needs change, we will see what we can do as well, but yeah. I think the majority of that so it's really down to the market situation. If that's really your question.
Speaker Change: Yes, no that's helpful and so yes that was my next question I mean do you think it's possible. Some of these customers come back just given your service level compared to where.
Speaker Change: The alternative is.
Speaker Change: I'm, a pretty humble guy so I don't want to be.
Speaker Change: Cocky here, but I think our our service anytime.
Speaker Change: Somebody leaves and goes and try something else.
Speaker Change: We're kind of hard to beat.
Speaker Change: Being proud and humbled at the same time.
Speaker Change: Yes, I do think so but.
Speaker Change: But we're going to continue to.
Speaker Change: We're not just sitting on our hands in and where we're making this network better every day and we have an outstanding team that is looking for perfection and not just staying status quo and so as we continue to make things better make things faster quality is improving.
Speaker Change: And it's hard to improve from a pretty outstanding quality that it is today.
Speaker Change: Yeah.
Speaker Change: We're kind of hard not to us.
Speaker Change: Okay, and then you're taking the cost out you've done a good job there and it's offset the volume loss do you think though that you have enough capacity, if we're all hoping volumes come back.
Speaker Change: Oh for sure. Yes. There is there is no doubt about it we run we run is pretty between R. R.
Speaker Change: Fleet owners and partners to our independent contractors through our own employee drivers.
Speaker Change: We can scale this thing up and down.
Speaker Change: Pretty pretty damn quick so yeah, that's not going to be a problem for us that'll be a good that'll be a good situation not a problem.
Speaker Change: Yes exactly.
Speaker Change: Lastly, it's small but the intermodal business.
Speaker Change: What is the impact of the lower West coast important what will actually benefit from some east coast East coast imports picking up again in some let's see situation.
Is alleviated.
Speaker Change: And you like my top sales Guy for intermodal right now so yes, Youll love. This so our intermodal team, which is fantastic group.
Speaker Change: We pretty much are focused all up and down the east coast into the Gulf.
Speaker Change: And then we have one operation in Seattle, Tacoma, So that's where our sweet spot is we catch most of our west coast traffic in the <unk>.
Speaker Change: Inter country rail yards from an intermodal standpoint, and Thats, where we grab the can so we're not heavily focused ourselves on the west coast La long Beach ports and so we feel that we're in the right sweet spot for grabbing as much as we have today and increased off the east coast, because that's where we are.
Speaker Change: Got it thanks for the questions I appreciate it.
Speaker Change: And we'll take our next question a follow up from Scott Group with Wolfe Research. Please go ahead. Your line is open.
Speaker Change: Hey, guys. Thanks for the follow up.
Speaker Change: I just I wanted to try to understand a little bit better and I totally get we're not giving guidance and there's a lot of.
Speaker Change: There's not a ton of visibility right now.
Speaker Change: And the disclosure is helpful or 88% U S customers, 70% ground transportation, but my assumption has been that a lot of that ground business is the airport to airport and thus ultimately tied to imports in the U S and so if there is a drop in imports into the U S.
Speaker Change: And that shows up as a headwind to volume in May and June right. As we start to see this drop in imports is that the right way to think about your business and are you seeing that or.
Speaker Change: Or you think it's more truly domestic and it's going to be more like what the other <unk> are talking about and I'm, saying I just want to make sure im understanding.
Speaker Change: How to think about the business drivers.
Scott: Hopefully I guess Scott Yeah. It does I would say that we are.
Scott: We're an import consuming country and so.
Scott: Sure.
Scott: No.
Scott: I can't even give you the right number but I would say.
Scott: So much of what we consume in the United States is imported into the United States. So.
Speaker Change: It's an impact but I would also say what a lot of people and this is my view with a lot of people don't understand is the tariff conversation. If this was a trump administration's first period.
Speaker Change: We would all have a lot more questions, but since it's not and this has shrunk 2.0.
Speaker Change: A lot of these concerns in my opinion are already mitigated because we had the first four years and another four years.
Speaker Change: To prepare for this and so I know a lot of people don't understand is new conversation.
Speaker Change: But a lot of what we call China, plus one has already moved to those plus one countries, where these tariffs aren't as impactful as China.
Speaker Change: And so where people are seeing the biggest decline right now is in China, but most of that which is not really a conversation is coming off the cancellation of the 321 de Minimis rule.
Speaker Change: And so a lot of this is more of the volume is coming down out of China for the E Commerce business. The small parcel business than it is about the density real cargo that that rides in our network. So I.
Speaker Change: I don't know if I helped you are confused you more but I don't think that this is going to be a real impact to our total volume in the LDL sector.
Speaker Change: That's super.
Speaker Change: It doesn't sound like the stuff that the typical stuff that's part of the de Minimis like the <unk> and <unk> the world that stuff doesn't really flow through your network on the.
Speaker Change: I won't say it doesn't flow, but it's minimal.
Speaker Change: Very helpful. Thank you I appreciate it your question Scott our exposure compared to other <unk> and I think Sean articulated it perfectly.
Speaker Change: Thank you.
Speaker Change: And as a reminder, if you'd like to ask a question. Please press the star and <unk> on your telephone keypad.
Speaker Change: We can pause for a moment to allow any further questions to queue.
Speaker Change: And we do have a follow up question from Bruce Chan with Stifel. Please go ahead. Your line is open.
Speaker Change: Hey, guys. Thanks for letting me jump again, Andrew again, I, just wanted to kind of get a temperature check on price competition in the premium <unk> services. It seems like others have been pretty deliberate about building market share in this segment, including standing up smaller hei <unk> networks. So how would you characterize the competition.
Speaker Change: And the competitive environment right now thank you.
Speaker Change: So Andrew I don't I mean again to be humble we have people playing in the space, but they don't have true networks.
Speaker Change: Not a full bespoke like we have so yeah, there's people out there playing this space pricing competition.
Speaker Change: For our service I don't I don't really see it on a day to day basis.
Speaker Change: They want to lower their rates if they've got.
Speaker Change: Good density lanes in there then they are buying it.
Speaker Change: Let them have it for a lower margin, but what we're doing is focused on our quality.
Speaker Change: And the rate that is market competitive to have the great service, we provide and that's where we're playing and let them do what they want to do we're staying focused really on us and being better everyday than than comparing ourselves to them.
Speaker Change: Okay. Thank you and I guess, if I can just have one more here.
Speaker Change: Apologies, if we missed it but I just wanted to get an update on that.
Speaker Change: <unk> in sourcing do you still feel like you're in a good place there, especially with the with respect line haul and are you seeing that market get any tighter or really any changes to that market. Thank you.
Speaker Change: You're talking about purchase transportation.
Speaker Change: Yesterday P T.
Speaker Change: Yeah, I think we're I think we're best in class there.
Speaker Change: We've got.
Speaker Change: Really outstanding drivers and owner operators and fleet owners.
Speaker Change: There's not a huge influx of overall demand there so we.
Speaker Change: We give them a great.
Speaker Change: Right to run our cargo as well as we work very closely with them to ensure that they get home as.
Speaker Change: As much as possible and so it's not just about right. It's how they're treated and we feel like we do that.
Speaker Change: Best in class against any of our competitors. So I don't I don't see that really being a huge issue this year and 25.
Speaker Change: Okay. Thank you for the time.
Speaker Change: Hmm.
Speaker Change: And there are no further questions in queue. At this time, let me turn the call back over to Mr. Stewart for any final remarks.
Speaker Change: Alright, well I want to personally thank everyone for joining the call today really appreciate it and look forward to connecting with you soon.
Speaker Change: If you have any questions. Please follow up directly with Tony and he'll get back to us if needed or take your calls really appreciate it take care.
Speaker Change: This concludes forward Air's first quarter 2025 earnings conference call. Please disconnect your lines at this time and have a wonderful evening.
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