Forward Air Corp 2026 Q2 Earnings Call

Thank you, operator. Good afternoon, everyone. Welcome to Forward Air's second quarter earnings conference call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer, and Jamie Pierson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air's second quarter 2026 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining second quarter 2026 earnings highlights and a business update. Both the press release and slide presentation for this call are accessible on the investor relations section of forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call may be considered forward-looking statements.

This includes statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends, and other matters that are not historical facts, including statements regarding our fiscal year 2026. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law.

During the call, there may also be discussions of financial metrics that do not conform to U.S. generally accepted accounting principles, or GAAP. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Definitions and reconciliations of these non-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 Shawn.

Good afternoon, everyone. Thank you for joining us. I would like to begin by saying how excited I continue to be about Forward Air and the opportunity ahead as we continue building and growing this global enterprise. While we have more work to do, as you'll hear from us today, we are beginning to see the fruits of our labor and results at the level I know we are capable of producing. Before I get into our results, I want to recognize the people who make our business possible. First, to our customers, thank you for your continued trust and partnership. We appreciate the confidence you place in Forward Air and are grateful for the opportunity to earn your business every day. To our employees, thank you for your commitment, professionalism, and relentless focus on serving our customers.

Every day, you demonstrate the dedication and service excellence that differentiate Forward Air and reinforce our reputation as a trusted logistics partner. Finally, to our shareholders and lenders, thank you for your continued confidence and support. We value the trust you've placed in our leadership team and remain committed to creating long-term value through disciplined execution and consistent performance. Finally, to everyone I just referenced, since the transaction two and a half years ago, you patiently stood by us and supported us as we combined two great legacy companies. With the stabilization and integration phases behind us, we are poised for continued excellent customer service and supporting the growth of our business more than ever. Because of your continued support, we are arguably in the best financial position since taking office. From our leadership team to you, thank you.

Now, to the main topics I would like to cover on today's call. First, I will provide some comments on the quarterly results. Second, I will provide an update on the sale of our non-core assets. Third, I will provide some comments on the retention of one of our largest customers. With that, let's begin with the second quarter results. For the quarter, we reported the best operating revenue in the company history. We also reported the best consolidated EBITDA result in two and a half years. Operating revenue was $673 million, compared to the $619 million in the second quarter of 2025. A consolidated EBITDA, which is calculated pursuant to our credit agreement, improved to $93 million compared to $79 million a year ago.

The strong performance was led by the expedited freight segment, which reported its best operating revenue, best operating income, best reported EBITDA, and best margin since the beginning of 2024. The Omni Logistics segment saw an increase in demand for its contract logistics and air and ocean services. Excluding the impact of goodwill impairment, achieved its best reported EBITDA and margin since the transaction in early 2024. The Intermodal segment bounced back and had its best reported EBITDA result in five quarters and best margin in six quarters, attributable to a strong pipeline and recently enacted strategic rate increases to several underperforming accounts. These results reflect our team's dedication to meeting customers' expectations, combined with positive momentum in the freight market and a tailwind from higher diesel prices. Market fundamentals are improving as capacity continues to tighten, driven by regulatory enforcement and carrier exits.

At this time, macro leading demand indicators are becoming more constructive, including seven consecutive months of manufacturing PMI expansion, lean inventory levels as indicated by the sales-to-inventory ratio that could support a future restocking cycle, and increasing truckload spot rates and tender rejection rates. We believe these trends point toward a continual, gradual freight recovery. Although some macroeconomic uncertainties remain, particularly from the geopolitical tensions and diesel price volatility, which could weigh on industrial activity and delay demand recovery. As everyone knows, recoveries are rarely, if ever, linear in nature, but we remain committed to executing our transformation and growth strategy through disciplined cost management and exceptional customer service. With the fundamentals addressed, let's turn to the second topic, an update on the sale of our non-core assets.

As you may recall, on our first quarter earnings call, we announced our intention to sell two smaller businesses within the legacy Omni segment. During the second quarter, we completed the disposition of the first business, and in July, we closed on the disposition of the second business. We are pleased to have successfully completed both of these transactions as part of our portfolio optimization. While not material, this does simplify our portfolio of services, allowing us to focus on the core of our future and have the added benefit of monetizing underperforming assets. The remaining targeted divestiture that we announced is the Intermodal business. The good news is the business is performing very well and is reporting its highest margin in recent history.

I believe that the management team that runs this business is one of the best in the space and is committed to not only continuing to service customers but continue to profitably grow the base. The sales process is progressing as planned and remains on schedule with an expected closing date by the end of the year. As previously communicated, the sale of these non-core assets is expected to advance efforts to de-lever the balance sheet, streamline the organization, and enhance shareholder value. Finally, as you saw a few weeks ago, we provided an important update on the customer retention. As we previously disclosed in May, we have been engaged in discussions with one of our largest customers regarding its planned transition of a portion of their services currently provided by Omni to other service providers.

As we have discussed before, this change is a function of the customer's operational and supplier diversification initiatives and has nothing to do with the exceptional service we provide during our 20-year relationship. With the recent signing of the memorandum of understanding, or MOU, we are off to a great start. Under the MOU, we expect to retain at least half of the approximately $250 million of revenue attributable to the customer for the fiscal year ending December 31st, 2025, with the potential of retaining an additional approximate 25%. In addition to the MOU, contemplates an extension of the term of the contract for the retained services for a period of no less than two years.

For the services that are expected to be transitioned to other providers, that is anticipated to start later this year, with the majority taking place in December 2026 and throughout the balance of 2027. We are extremely pleased with the productive conversations we have had with the customer, including the prospect of retaining up to 75% of the 2025 business levels and meaningfully extending the contract term. Please keep in mind that the customer has continued to grow with us throughout 2026. With that, I will now turn the call over to Jamie to go through the detailed results from the second quarter.

Thanks as always, Sean. Good afternoon, everyone. As you heard from Sean, we reported a consolidated EBITDA of $93 million in the second quarter, compared to $79 million in the second quarter of 2025, and a full percentage point improvement in margin. On an LTM basis, consolidated EBITDA was $319 million as of the end of the second quarter. Referring to page 30 of the presentation, on an adjusted EBITDA basis, the second quarter results improved by $18 million to $92 million, compared to $74 million in the second quarter of last year, which speaks to the continued improvement in the quality of our earnings. Turning to operating income or loss, in the second quarter, we incurred a goodwill impairment charge of $244 million related to the Omni Logistics segment that negatively impacted the quarter.