Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a leading asset-light freight provider of transportation services, including LTL, truckload and intermodal drayage services and freight brokerage and supply chain services across North and South America, Europe, and Asia. We offer premium services that typically require precision execution, such as expedited transit, delivery during tight time windows and special handling. We utilize an asset-light strategy to minimize our investments in equipment and facilities and to reduce our capital expenditures.
Our services are classified into three reportable segments: Expedited Freight, Intermodal and Omni Logistics.
Our Expedited Freight segment provides expedited regional, inter-regional and national LTL services. Expedited Freight also offers customers local pick-up and delivery and other services including truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. We plan to grow our LTL geographic footprint through greenfield start-ups as well as through acquisitions.
Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and CFS warehouse and handling services, and in select locations, linehaul and LTL services. We plan to grow our Intermodal geographic footprint through acquisitions as well as through greenfield start-ups where no suitable acquisition is available.
Our Omni Logistics segment provides a full suite of global logistics services. Services include air and ocean freight consolidation and forwarding, customs brokerage, warehousing and distribution, time-definite transportation services and other supply chain solutions.
Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound or shipment for the freight shipped or moved through our network. Additionally, our earnings depend on the growth of other services, such as LTL pickup and delivery, which will allow us to maintain revenue growth in a challenging freight environment. We continue to focus on creating synergies across our services, particularly with services offered in our Expedited Freight reportable segment. Synergistic opportunities include the ability to share resources, in particular our fleet resources.
We monitor and analyze a number of key operating statistics in order to manage our business and evaluate our financial and operating performance. These key operating statistics are defined below and are referred to throughout the discussion of the financial results of our Expedited Freight and Intermodal reportable segments. Our key operating statistics should not be interpreted as better measurements of our results than income from operations as determined under GAAP.
Within our Expedited Freight reportable segment, our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing LTL network. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor and door pounds handled per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. Revenue per hundredweight is also a commonly-used indicator for general pricing trends in the LTL industry and can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment and length of haul. Therefore, changes in revenue per hundredweight may not necessarily indicate actual changes in underlying base rates. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of the petroleum-based products used in our operations and is indexed to diesel fuel prices published by the U.S. Department of Energy. The impact of fuel on our results of operations depends on the relationship between the applicable surcharge, the fuel efficiency of our Company drivers, and the load factor achieved by our operation. Fluctuations in fuel prices in either direction could have a positive or negative impact on our margins, particularly in our LTL business where the weight of a shipment subject to the fuel surcharge on a given trailer can vary materially. We believe our yield management process focused on account level profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to grow profitably.
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The key operating statistics necessary to understand the operating results of our Expedited Freight reportable segment are described below in more detail:
Tonnage - Total weight of shipments in pounds. The level of freight tonnage is affected by economic cycles and conditions, customers’ business cycles, changes in customers’ business practices and capacity in the truckload market.
Weight Per Shipment - Total pounds divided by the number of shipments. Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight.
Revenue Per Hundredweight - Network revenue per every 100 pounds of shipment weight. Our LTL transportation services are generally priced based on weight, commodity, and distance. Our pricing policies are reflective of the services we provide, and can be influenced by competitive market conditions. Changes in the freight profile factors such as average shipment size, average length of haul, freight density, and customer and geographic mix can impact the revenue per hundredweight. Fuel surcharges and intercompany revenue between Network and Truckload are included in this measurement.
Revenue Per Shipment - Network revenue divided by the number of shipments. Fuel surcharges and intercompany revenue between Network and Truckload are included in this measurement.
Average Length of Haul - Total miles between origin and destination service centers for all shipments, with miles based on the size of shipments. Length of haul is used to analyze our tonnage and pricing trends for shipments with similar characteristics. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight.
Within our Intermodal reportable segment, our primary revenue focus is to increase the number of shipments. The key operating statistic necessary to understand the operating results of our Intermodal reportable segment is described below in more detail:
Drayage Revenue Per Shipment - Intermodal revenue divided by the number of drayage shipments. Revenue derived from container freight station warehouse and handling, and linehaul and LTL services is excluded from this measurement. Fuel surcharges and accessorial charges are included in this measurement.
Trends and Developments
Economy
Our business is highly susceptible to changes in economic conditions. Our products and services are directly tied to the production and sale of goods and, more generally, to the global economy. Participants in the transportation industry have historically experienced cyclical fluctuations in financial results due to economic recessions, downturns in the business cycles of customers, volatility in the prices charged by third-party carriers, interest rate fluctuations and other U.S. and global macroeconomic developments. During economic downturns, reductions in overall demand for transportation services will likely reduce demand for our services and exert downward pressure on our rates and margins. In periods of strong economic growth, overall demand may exceed the available supply of transportation resources. While this may present an opportunity to increase economies of scale in our network and enhanced pricing and margins, these benefits may be lessened by increased network congestion and operating inefficiencies.
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Like other providers of freight transportation services, our business has been impacted by the macroeconomic conditions of the past year. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, laws and policies relating to tariffs, trade restrictions and foreign investment. Periodically, governments consider a variety of changes to tariffs and impose trade restrictions. We cannot predict the outcome of changes in tariffs, or interpretations, and trade restrictions and the effects they will have on our business. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping lanes in which we conduct business and the future impact that these events may have on international trade.
Our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including airlines, ocean carrier lines and ground transportation providers. We consider our current working relationships with these entities to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, capacity allotments available from carriers could affect our business in unpredictable ways. When the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates pricing volatility that could impact our ability to maintain historical profitability.
The global economic and trade environments remain uncertain, including inflation remaining higher than historical levels, greater volatility in oil prices and high interest rates. Starting in the second quarter of 2022 and continuing through most of 2023, we saw a slowdown in the global economy and a softening of customer demand resulting in declines in rates. As demand remains soft, available transportation capacity continues to exceed demand. These conditions could result in further declines in rates in 2024. We also expect that pricing volatility will continue as carriers adapt to lower demand, changing fuel prices, security risks and react to governmental trade policies and other regulations.
Fuel
We depend heavily upon the availability of adequate diesel fuel supplies, and recently, fuel availability and prices have fluctuated significantly. Fuel availability and prices can be impacted by factors beyond our control, such as natural or manmade disasters, adverse weather conditions, political events, economic sanctions imposed against oil-producing countries or specific industry participants, disruptions or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, terrorist activities, armed conflict, tariffs, sanctions, other changes to trade agreements and world supply and demand imbalance. Through our fuel surcharge programs, we have been able to mitigate the impact of fluctuations in fuel prices. Our fuel surcharge rates are set weekly based on the national average for fuel prices as published by the U.S. Department of Energy and our fuel surcharge table. In periods of changing fuel prices, our fuel surcharges vary by different degrees and may not fully offset fuel price fluctuations or may result in higher than expected increases in revenue. Fuel shortages, changes in fuel prices, and the potential volatility in fuel surcharge revenue may impact our results of operations and overall profitability. Fuel surcharge revenue as a percentage of operating revenues decreased to 10.1% for the quarter ended June 30, 2024 compared to 17.9% for the quarter ended June 30, 2023 as a result of the inclusion of Omni in the results for the quarter ended June 30, 2024 .
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Recent Events and Factors Affecting Comparability
Omni Acquisition
On January 25, 2024, we completed the Omni Acquisition pursuant to which we acquired Omni for a combination of
(a) $100,499 in cash (which includes pre-acquisition Omni costs of approximately $80 million) (b) 14,015 shares of common stock on an as-converted and as-exchanged basis consisting of: (i) 1,910 shares of common stock (of which 1,210 were issued upon conversion of the Series C Preferred Units upon the Conversion Approval) and (ii) 12,105 Opco Class B Units and corresponding Series B Preferred Units, which are exchangeable into shares of common stock (of which 7,670 units were issued upon conversion of the units of Opco designated as “Opco Series C-2 Preferred Units” upon the Conversion Approval).
See Note 4, Acquisitions, to our Condensed Consolidated Financial Statements for more information about our acquisitions.
Omni Logistics revenues and segment income from January 25, 2024 through June 30, 2024 are included in our condensed consolidated statements of comprehensive (loss) income for the three months ended June 30, 2024. The changes in our results of operations for the three and six months ended June 30, 2024 as compared to the three months ended June 30, 2023 are primarily driven by the inclusion of the results of operations of Omni Logistics. The following table sets forth the financial data of our Omni Logistics segment for the three and six months ended June 30, 2024 (unaudited and in thousands):
Three Months Ended
June 30, 2024 Percent of Revenue
Operating revenue $ 311,856 100.0 %
Operating expenses:
Purchased transportation 178,674 57.3
Salaries, wages and employee benefits 57,536 18.4
Operating leases 26,751 8.6
Depreciation and amortization 33,235 10.7
Insurance and claims 2,845 0.9
Fuel expense 1,182 0.4
Other operating expenses 24,790 7.9
Impairment of goodwill 1,092,714 350.4
Total operating expenses 1,417,727 454.6
Loss from operations $ (1,105,871) (354.6) %
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Six Months Ended
June 30, 2024 Percent of Revenue
Operating revenue $ 536,694 100.0 %
Operating expenses:
Purchased transportation 323,098 60.2
Salaries, wages and employee benefits 106,311 19.8
Operating leases 45,878 8.5
Depreciation and amortization 50,104 9.3
Insurance and claims 4,898 0.9
Fuel expense 1,486 0.3
Other operating expenses 46,661 8.7
Impairment of goodwill 1,092,714 203.7
Total operating expenses 1,671,150 311.4
Loss from operations $ (1,134,456) (211.4) %
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Results from Operations
The following table sets forth our consolidated financial data for the three months ended June 30, 2024 and 2023 (unaudited and in thousands):
Three Months Ended
June 30, 2024 June 30, 2023 Change Percent Change
Operating revenues:
Expedited Freight $ 291,282 $ 269,436 $ 21,846 8.1 %
Intermodal 59,299 64,251 (4,952) (7.7)
Omni Logistics 311,856 — 311,856 —
Eliminations and other operations (18,771) (65) (18,706) NM
Operating revenues 643,666 333,622 310,044 92.9
Operating expenses:
Purchased transportation 321,587 141,967 179,620 126.5
Salaries, wages and employee benefits 144,000 73,963 70,037 94.7
Operating leases 46,258 22,896 23,362 102.0
Depreciation and amortization 48,639 13,245 35,394 267.2
Insurance and claims 14,698 12,761 1,937 15.2
Fuel expense 5,859 5,202 657 12.6
Other operating expenses 65,666 37,263 28,403 76.2
Impairment of goodwill 1,092,714 — 1,092,714 —
Total operating expenses 1,739,421 307,297 1,432,124 466.0
Income (loss) from continuing operations:
Expedited Freight 21,946 27,063 (5,117) (18.9)
Intermodal 5,317 4,312 1,005 23.3
Omni Logistics (1,105,871) — (1,105,871) —
Other Operations (17,147) (5,050) (12,097) 239.5
(Loss) income from continuing operations (1,095,755) 26,325 (1,122,080) (4,262.4)
Other income and expenses:
Interest expense, net (47,265) (2,585) (44,680) 1,728.4
Foreign exchange gain 1,567 — 1,567 —
Other income, net 40 — 40 —
Total other expense (45,658) (2,585) (43,073) 1,666.3
(Loss) income before income taxes (1,141,413) 23,740 (1,165,153) (4,908.0)
Income tax (benefit) expense (174,942) 6,613 (181,555) (2,745.4)
Net (loss) income from continuing operations (966,471) 17,127 (983,598) (5,743.0)
(Loss) income from discontinued operation, net of tax (4,876) 2,824 (7,700) (272.7)
Net (loss) income (971,347) 19,951 (991,298) (4,968.7)
Net (loss) attributable to noncontrolling interest (325,914) — (325,914) —
Net (loss) income attributable to Forward Air $ (645,433) $ 19,951 $ (665,384) (3335.1) %
NM=Not Meaningful
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Operating Revenues
Operating revenues increased $310,044, or 92.9%, to $643,666 for the three months ended June 30, 2024 compared to $333,622 for the three months ended June 30, 2023. The increase was primarily due to the inclusion of $311,856 from the Omni Logistics segment and an increase in our Expedited Freight segment of $21,846 due to increased Network revenue, offset by a decrease from our Intermodal segment of $4,952. The results for our reportable segments are discussed in detail in the following sections.
Operating Expenses
Operating expenses increased $1,432,124, or 466.0%, to $1,739,421 for the three months ended June 30, 2024 compared to $307,297 for the three months ended June 30, 2023. The increase was primarily due to the inclusion of the $1,417,727 of operating expenses from the Omni Logistics segment which includes an impairment charge of $1,092,714 and a $26,963 increase in operating expenses from the Expedited Freight segment, partially offset by a $5,957 decrease in operating expenses from the Intermodal segment. Purchased transportation expense is our largest expense which includes our independent contractor fleet owners and owner-operators, who lease their equipment to our motor carriers (“Leased Capacity Providers ”), third-party motor carriers and capacity secured by transportation intermediaries, while Company-employed drivers are included in salaries, wages and employee benefits.
Income from Continuing Operations and Segment Operations
Income from operations decreased $1,122,080, or 4,262.4%, to a $1,095,755 loss for the three months ended June 30, 2024 compared to a $26,325 of income for the three months ended June 30, 2023. The decrease was primarily due to a decrease in Omni Logistics segment of $1,105,871, driven by an impairment charge of $1,092,714, Expedited Freight segment of $5,117, and Intermodal segment of $1,005.
Interest Expense, net
Interest expense, net was $47,265 for the three months ended June 30, 2024 compared to $2,585 for the three months ended June 30, 2023. The increase in interest expense was primarily due to higher borrowings outstanding during the second quarter of 2024 as compared to the same period in 2023 and an increase in the average interest rate. In connection with the Omni Acquisition, the outstanding borrowings remained steady in the second quarter of 2024. The weighted-average interest rate on the outstanding borrowings were 9.56% and 6.32% during the three months ended June 30, 2024 and 2023, respectively.
Income Taxes on a Continuing Basis
The effective tax rate for the three months ended June 30, 2024 was 15.3% compared to 27.8% for the three months ended June 30, 2023. The effective tax rate varied from the statutory United States federal rate of 21% in the second quarter of 2024 primarily due to the effect of the noncontrolling interest, non-deductible executive compensation, excess tax benefits realized on share-based awards, partially offset by state income taxes, net of the federal benefit, and foreign taxes. The effective tax rate varied from the statutory United States federal rate of 21% in the second quarter of 2023 primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards.
Income from Discontinued Operations, net of Tax
Loss from discontinued operations, net of tax increased $7,700 or 272.7% for the three months ended June 30, 2024 compared to the same period in 2023. The increase was due to the final net working capital settlement following the sale of our Final Mile business in December 2023.
Net (Loss) Income
As a result of the foregoing factors, net income decreased $991,298, to a $971,347 loss for the three months ended June 30, 2024 compared to $19,951 income for the three months ended June 30, 2023.
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Expedited Freight - Three Months Ended June 30, 2024 compared to Three Months Ended June 30, 2023
The following table sets forth the financial data of our Expedited Freight segment for the three months ended June 30, 2024 and 2023 (unaudited and in thousands):
Three Months Ended
June 30, 2024 Percent of Revenue June 30, 2023 Percent of Revenue Change Percent Change
Operating revenues:
Network 1
$ 223,334 76.7 % $ 205,762 76.4 % $ 17,572 8.5 %
Truckload 44,678 15.3 40,432 15.0 4,246 10.5
Other 23,270 8.0 23,242 8.6 28 0.1
Total operating revenues 291,282 100.0 269,436 100.0 21,846 8.1
Operating expenses:
Purchased transportation 142,512 48.9 124,122 46.1 18,390 14.8
Salaries, wages and employee benefits 63,845 21.9 57,637 21.4 6,208 10.8
Operating leases 14,730 5.1 16,201 6.0 (1,471) (9.1)
Depreciation and amortization 10,692 3.7 8,439 3.1 2,253 26.7
Insurance and claims 10,969 3.8 10,104 3.8 865 8.6
Fuel expense 2,434 0.8 2,511 0.9 (77) (3.1)
Other operating expenses 24,154 8.3 23,359 8.7 795 3.4
Total operating expenses 269,336 92.5 242,373 90.0 26,963 11.1
Income from operations $ 21,946 7.5 % $ 27,063 10.0 % $ (5,117) (18.9) %
1 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial and Truckload revenue.
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Expedited Freight Operating Statistics
Three Months Ended
June 30, 2024 June 30, 2023 Percent Change
Business days 64 64 — %
Tonnage 1,2
Total pounds 713,919 673,878 5.9
Pounds per day 11,155 10,529 5.9
Shipments 1,2
Total shipments 870 842 1.4
Shipments per day 13.6 13.2 1.4
Weight per shipment 821 801 2.5
Revenue per hundredweight 3
$ 31.29 $ 30.79 1.6
Revenue per hundredweight, ex fuel 3
$ 24.38 $ 24.08 1.2
Revenue per shipment 3
$ 256.80 $ 246.59 4.1
Revenue per shipment, ex fuel 3
$ 200.05 $ 192.85 3.7
1 In thousands
2 Excludes accessorial and Truckload products
3 Includes intercompany revenue between the Network and Truckload revenue streams
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Operating Revenues
Expedited Freight operating revenues increased $21,846, or 8.1%, to $291,282 for the three months ended June 30, 2024 from $269,436 for the three months ended June 30, 2023. The increase was primarily due to increased Network and Truckload revenue. Network revenue increased due to a 5.9% increase in pounds per day, offset by a 1.2% decrease in revenue per hundredweight excluding fuel as compared to the same period in 2023. The increase in tonnage reflects an increase in weight per shipment of 2.5% on 1.4% more shipments per day. The increase in shipments is due to higher demand for our services while the increase in weight per shipment was the result of more dense freight in our network driven by a change in the mix of services provided to customers. Fuel surcharge revenue increased $4,151, or 9.2% as a result of the increased tonnage in our Network as compared to the same period in 2023. Truckload revenue increased $4,246, primarily due to increased customer demand for our services.
Purchased Transportation
Expedited Freight purchased transportation increased $18,390, or 14.8%, to $142,512 for the three months ended June 30, 2024 from $124,122 for the three months ended June 30, 2023. Purchased transportation was 48.9% of Expedited Freight operating revenues for the three months ended June 30, 2024 compared to 46.1% for the same period in 2023. Expedited Freight purchased transportation includes Leased Capacity Providers and third-party motor carriers and transportation intermediaries, while Company-employed drivers are included in salaries, wages and employee benefits. The increase in purchased transportation was primarily due to higher volumes in Network, and the change in the mix of freight capacity purchased from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers for Network and Truckload services. For the three months ended June 30, 2024, 62.8%, 33.2% and 4.0% of our freight capacity was purchased from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers, respectively, for Network and Truckload. This compares to 62.1%, 32.7% and 5.3%, respectively, in the same period in 2023.
Salaries, Wages and Employee Benefits
Expedited Freight salaries, wages and employee benefits increased $6,208, or 10.8%, to $63,845 for the three months ended June 30, 2024 from $57,637 for the three months ended June 30, 2023. Salaries, wages and employee benefits were 21.9% of Expedited Freight operating revenues for the three months ended June 30, 2024 compared to 21.4% for the same period in 2023. The increase in salaries, wages and employee benefits expense was primarily due to an increase in Company-employed drivers in response to the higher volumes, an increase in the reserve for incentive compensation and an increase in salaries and wages as compared to the same period in 2023.
Operating Leases
Expedited Freight operating leases decreased $1,471, or 9.1%, to $14,730 for the three months ended June 30, 2024 from $16,201 for the three months ended June 30, 2023. Operating leases were 5.1% of Expedited Freight operating revenues for the three months ended June 30, 2024 compared to 6.0% for the same period in 2023. The decrease in operating lease expense was primarily due to fewer equipment leases in the second quarter of 2024 as compared to the same period in 2023.
Depreciation and Amortization
Expedited Freight depreciation and amortization increased $2,253, or 26.7%, to $10,692 for the three months ended June 30, 2024 from $8,439 for the three months ended June 30, 2023. Depreciation and amortization was 3.7% of Expedited Freight operating revenues for the three months ended June 30, 2024 compared to 3.1% for the same period in 2023. The increase in depreciation and amortization expense was primarily as the result of purchasing and placing in service new equipment in the second half of 2023 and in the first half of 2024.
Income from Operations
Expedited Freight income from operations decreased $5,117, or 18.9%, to $21,946 for the three months ended June 30, 2024 compared to $27,063 for the three months ended June 30, 2023. Income from operations was 7.5% of Expedited Freight operating revenues for the three months ended June 30, 2024 compared to 10.0% for the same period in 2023. The decrease in income from operations as a percentage of operating revenues was driven by the change in the mix of freight capacity purchased from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers for Network and Truckload for the three months ended June 30, 2024 compared to the same period in 2023.
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Intermodal - Three Months Ended June 30, 2024 compared to Three Months Ended June 30, 2023
The following table sets forth the financial data of our Intermodal segment for the three months ended June 30, 2024 and 2023 (unaudited and in thousands):
Three Months Ended
June 30, 2024 Percent of Revenue June 30, 2023 Percent of Revenue Change Percent Change
Operating revenues $ 59,299 100.0 % $ 64,251 100.0 % $ (4,952) (7.7) %
Operating expenses:
Purchased transportation 19,173 32.3 17,909 27.9 1,264 7.1
Salaries, wages and employee benefits 14,899 25.1 16,650 25.9 (1,751) (10.5)
Operating leases 4,776 8.1 6,695 10.4 (1,919) (28.7)
Depreciation and amortization 4,712 7.9 4,806 7.5 (94) (2.0)
Insurance and claims 2,619 4.4 2,815 4.4 (196) (7.0)
Fuel expense 2,243 3.8 2,692 4.2 (449) (16.7)
Other operating expenses 5,560 9.4 8,372 13.0 (2,812) (33.6)
Total operating expenses 53,982 91.0 59,939 93.3 (5,957) (9.9)
Income from operations $ 5,317 9.0 % $ 4,312 6.7 % $ 1,005 23.3 %
Intermodal Operating Statistics
Three Months Ended
June 30, 2024 June 30, 2023 Percent Change
Drayage shipments 64,877 68,180 (4.8) %
Drayage revenue per shipment $ 826 $ 853 (3.2) %
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Operating Revenues
Intermodal operating revenues decreased $4,952, or 7.7%, to $59,299 for the three months ended June 30, 2024 from $64,251 for the three months ended June 30, 2023. The decrease in operating revenues was primarily due to a 4.8% decrease in drayage shipments and a decrease in drayage revenue per shipment of 3.2% as compared to the same period in 2023. The decrease in drayage shipments and lower accessorial revenues to support customers was primarily due to the challenged market conditions that led to decreased customer demand for our services in the second quarter of 2024 as compared to the same period in 2023.
Purchased Transportation
Intermodal purchased transportation increased $1,264, or 7.1%, to $19,173 for the three months ended June 30, 2024 from $17,909 for the three months ended June 30, 2023. Purchased transportation was 32.3% of Intermodal operating revenues for the three months ended June 30, 2024 compared to 27.9% for the same period in 2023. Intermodal purchased transportation includes Leased Capacity Providers and third-party motor carriers, while Company-employed drivers are included in salaries, wages and employee benefits. The increase in purchased transportation was primarily due to the change in the mix of freight capacity purchased from Leased Capacity Providers, third-party motor carriers and Company-employed drivers compared to the same period in 2023.
Salaries, Wages and Employee Benefits
Intermodal salaries, wages and employee benefits decreased $1,751, or 10.5%, to $14,899 for the three months ended June 30, 2024 compared to $16,650 for the three months ended June 30, 2023. Salaries, wages and employee benefits were 25.1% of Intermodal operating revenues for the three months ended June 30, 2024 compared to 25.9% for the same period in 2023. The decrease in salaries, wages and employee benefits expense was primarily due to fewer Company-employed drivers and office employees in response to the lower volumes, as compared to the same period in 2023.
Operating Leases
Intermodal operating leases decreased $1,919, or 28.7%, to $4,776 for the three months ended June 30, 2024 compared to $6,695 for the three months ended June 30, 2023. Operating leases were 8.1% of Intermodal operating revenues for the three months ended June 30, 2024 compared to 10.4% for the same period in 2023. The decrease in operating leases expense was primarily due to lower equipment expense incurred to support decreased accessorial revenues in the second quarter of 2024 as compared to the same period in 2023.
Other Operating Expenses
Intermodal other operating expenses decreased $2,812, or 33.6%, to $5,560 for the three months ended June 30, 2024 from $8,372 for the three months ended June 30, 2023. Other operating expenses were 9.4% of Intermodal operating revenues for the three months ended June 30, 2024 compared to 13.0% for the same period in 2023. Other operating expenses include contract labor, equipment maintenance, facility expenses, legal and professional fees, and accessorial storage costs. The decrease in other operating expenses was primarily due to lower accessorial storage costs incurred as a result of decreased accessorial revenues in the second quarter of 2024 compared to the same period in 2023.
Income from Operations
Intermodal income from operations increased $1,005, or 23.3%, to $5,317 for the three months ended June 30, 2024 compared to $4,312 for the three months ended June 30, 2023. Income from operations was 9.0% of Intermodal operating revenues for the three months ended June 30, 2024 compared to 6.7% for the same period in 2023. The increase in income from operations as a percentage of operating revenues was primarily due to lower operating expenses in response to lower volumes.
Other Operations - Three Months Ended June 30, 2024 compared to Three Months Ended June 30, 2023
Other operations included a $17,147 operating loss during the three months ended June 30, 2024 compared to $5,050 of operating income during the three months ended June 30, 2023. The change in the operating loss was primarily due to $10,018 of professional fees incurred for transaction and integration costs in connection with the Omni Acquisition, incentive compensation and severance costs partially offset by a decrease in the reserves for vehicle liability claims.
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Results from Operations
The following table sets forth our consolidated financial data for the six months ended June 30, 2024 and 2023 (unaudited and in thousands):
Six Months Ended
June 30, 2024 June 30, 2023 Change Percent Change
Operating revenues:
Expedited Freight $ 564,577 $ 539,013 $ 25,564 4.7 %
Intermodal 115,591 152,420 (36,829) (24.2)
Omni Logistics 536,694 — 536,694 —
Eliminations and other operations (31,383) (102) (31,281) NM
Operating revenues 1,185,479 691,331 494,148 71.5
Operating expenses:
Purchased transportation 598,602 287,138 311,464 108.5
Salaries, wages, and employee benefits 272,867 140,610 132,257 94.1
Operating leases 85,061 46,969 38,092 81.1
Depreciation and amortization 80,425 25,617 54,808 214.0
Insurance and claims 27,579 26,019 1,560 6.0
Fuel expense 11,105 10,888 217 2.0
Other operating expenses 178,613 80,569 98,044 121.7
Impairment of goodwill 1,092,714 — 1,092,714 —
Total operating expenses 2,346,966 617,810 1,729,156 279.9
Income (loss) from operations:
Expedited Freight 41,444 56,748 (15,304) (27.0)
Intermodal 8,903 15,515 (6,612) (42.6)
Omni Logistics (1,134,456) — (1,134,456) —
Other Operations (77,378) 1,258 (78,636) NM
(Loss) income from operations (1,161,487) 73,521 (1,235,008) (1,679.8)
Other expense:
Interest expense, net (88,018) (4,940) (83,078) 1,681.7
Foreign exchange loss 899 — 899 —
Other income, net 49 — 49 —
Total other expense (87,070) (4,940) (82,130) 1,662.6
(Loss) income from operations before income taxes (1,248,557) 68,581 (1,317,138) (1,920.6)
Income tax (benefit) expense (193,292) 17,550 (210,842) (1,201.4)
Net income from continuing operations (1,055,265) 51,031 (1,106,296) (2,167.9)
(Loss) income from discontinued operation, net of tax (4,876) 5,288 (10,164) (192.2)
Net (loss) income (1,060,141) 56,319 (1,116,460) (1,982.4)
Net loss attributable to noncontrolling interest (352,996) — (352,996) —
Net (loss) income attributable to Forward Air $ (707,145) $ 56,319 $ (763,464) (1,355.6) %
NM=Not Meaningful
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Operating Revenues
Operating revenues increased $494,148, or 71.5% to $1,185,479 for the six months ended June 30, 2024 compared to $691,331 for the six months ended June 30, 2023. The increase was primarily due to the inclusion of $536,694 from the Omni Logistics segment and an increase in our Expedited Freight segment revenue of $25,564 due to increased Network revenue, offset by a decrease from our Intermodal segment of $36,829, The results for our reportable segments are discussed in detail in the following sections.
Operating Expenses
Operating expenses increased $1,729,156, or 279.9%, to $2,346,966 for the six months ended June 30, 2024 compared to $617,810 for the six months ended June 30, 2023. The increase was primarily due to the inclusion of the $1,671,150 of operating expenses from the Omni Logistics segment which includes a goodwill impairment charge of $1,092,714 and a $40,868 increase in operating expenses from the Expedited Freight segment, partially offset by a $30,217 decrease in operating expenses from the Intermodal segment. Purchased transportation expense includes our Leased Capacity Providers, third-party motor carriers and capacity secured by transportation intermediaries, while Company-employed drivers are included in salaries, wages and employee benefits.
Income from Operations and Segment Operations
Income from operations decreased $1,235,008, or 1,679.8%, to $1,161,487 for the six months ended June 30, 2024 compared to $73,521 for the six months ended June 30, 2023. The decrease was primarily driven by a decrease in Omni Logistics segment of $1,134,456 as a result of a goodwill impairment charge of $1,092,714, Other Operations of $78,636, Expedited Freight segment of $15,304, and our Intermodal segment of $6,612.
Interest Expense, net
Interest expense, net was $88,018 for the six months ended June 30, 2024 compared to $4,940 for the six months ended June 30, 2023. The increase in interest expense was due to higher variable interest rates during the six months ended June 30, 2024 on higher borrowings outstanding under the Revolving Credit Facility as compared to the same period in 2023. The weighted-average interest rate on the borrowings under the Revolving Credit Facility was 9.56% and 6.05% during the six months ended June 30, 2024 and 2023, respectively.
Income Taxes on a Continuing basis
The effective tax rate for the six months ended June 30, 2024 was 15.5% compared to a rate of 25.7% for the six months ended June 30, 2023.
(Loss) Income from Discontinued Operations, net of Tax
Loss from discontinued operations, net of tax increased $10,164 or 192% for the six months ended June 30, 2024 compared to the same period in 2023. The increase was due to the final net working capital settlement following the sale of our Final Mile business in December 2023.
Net (Loss) Income
As a result of the foregoing factors, net income decreased $1,116,460, or 1,982.4%, to a loss of $1,060,141 for the six months ended June 30, 2024 compared to $56,319 income for the six months ended June 30, 2023.
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Expedited Freight - Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023
The following table sets forth the financial data of our Expedited Freight segment for the six months ended June 30, 2024 and 2023:
Expedited Freight Segment Information
(unaudited and in thousands)
Six Months Ended
June 30, 2024 Percent of Revenue June 30, 2023 Percent of Revenue Change Percent Change
Operating revenues:
Network 1
$ 437,827 77.5 % $ 411,693 76.4 % $ 26,134 6.3 %
Truckload 81,732 14.5 82,176 15.2 (444) (0.5)
Other 45,018 8.0 45,144 8.4 (126) (0.3)
Total operating revenues 564,577 100.0 539,013 100.0 25,564 4.7
Operating expenses:
Purchased transportation 270,272 47.9 249,316 46.3 20,956 8.4
Salaries, wages and employee benefits 126,398 22.4 113,555 21.1 12,843 11.3
Operating leases 29,712 5.3 31,939 5.9 (2,227) (7.0)
Depreciation and amortization 20,982 3.7 16,065 3.0 4,917 30.6
Insurance and claims 21,621 3.8 19,323 3.6 2,298 11.9
Fuel expense 5,015 0.9 5,024 0.9 (9) (0.2)
Other operating expenses 49,133 8.7 47,043 8.7 2,090 4.4
Total operating expenses 523,133 92.7 482,265 89.5 40,868 8.5
Income from operations $ 41,444 7.3 % $ 56,748 10.5 % $ (15,304) (27.0) %
1 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial and Truckload revenue.
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Expedited Freight Operating Statistics
Six Months Ended
June 30, 2024 June 30, 2023 Percent Change
Business days 128 128 — %
Tonnage 1,2
Total pounds 1,398,914 1,303,958 7.3
Pounds per day 10,929 10,187 7.3
Shipments 1,2
Total shipments 1,698 1,658 2.4
Shipments per day 13.3 13.0 2.3
Weight per shipment 824 786 4.8
Revenue per hundredweight 3
$ 31.31 $ 32.03 (2.2)
Revenue per hundredweight, ex fuel 3
$ 24.27 $ 24.89 (2.5)
Revenue per shipment 3
$ 257.94 $ 251.66 2.5
Revenue per shipment, ex fuel 3
$ 199.92 $ 195.53 2.2
1 In thousands
2 Excludes accessorial and Truckload products
3 Includes intercompany revenue between the Network and Truckload revenue streams
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Operating Revenues
Expedited Freight operating revenues increased $25,564, or 4.7%, to $564,577 for the six months ended June 30, 2024 from $539,013 for the six months ended June 30, 2023. The increase was driven by increased Network revenue. Network revenue increased due to a 7.3% increase in tonnage offset by a 2.5% decrease in revenue per hundredweight ex fuel as compared to the same period in the prior year. The increase in tonnage reflects an increase in weight per shipment of 4.8% on 2.4% more shipments. The increase in shipments is due to higher demand for our services while the increase in weight per shipment was the result of more dense freight in our network driven by a change in the mix of services provided to customers. Fuel surcharge revenue increased $5,437, or 5.8% due to an increase in tonnage in the Network.
Purchased Transportation
Expedited Freight purchased transportation increased $20,956, or 8.4%, to $270,272 for the six months ended June 30, 2024 from $249,316 for the six months ended June 30, 2023. Purchased transportation was 47.9% of Expedited Freight operating revenue for the six months ended June 30, 2024 compared to 46.3% for the same period in 2023. Expedited Freight purchased transportation includes Leased Capacity Providers and third-party motor carriers and transportation intermediaries, while Company-employed drivers are included in salaries, wages and employee benefits. The increase in purchased transportation was primarily due to higher volumes in the Network and the change in the mix of freight capacity purchased from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers for Network and Truckload services. For the six months ended June 30, 2024, we purchased 64.0%, 31.7% and 4.3% of our freight capacity from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers, respectively. This compares to 66.5%, 28.8.9% and 4.7% in the same period in 2023.
Salaries, Wages, and Employee Benefits
Expedited Freight salaries, wages and employee benefits increased $12,843, or 11.3%, to $126,398 for the six months ended June 30, 2024 from $113,555 for the six months ended June 30, 2023. Salaries, wages and employee benefits were 22.4% of Expedited Freight operating revenues for the six months ended June 30, 2024 compared to 21.1% for the same period in 2023. The increase in salaries, wages and employee benefits expense was primarily due to a increase in the reserve for incentive compensation, an increase in Company-employed drivers in response to the higher volumes and an increase in salaries and wages compared to the same period in 2023.
Operating Leases
Expedited Freight operating leases decreased $2,227, or 7.0%, to $29,712 for the six months ended June 30, 2024 from $31,939 for the six months ended June 30, 2023. Operating leases were 5.3% of Expedited Freight operating revenues for the six months ended June 30, 2024 compared to 5.9% for the same period in 2023. The decrease in operating leases expense was primarily due to fewer equipment leases for the six months ended June 30, 2024, as compared to the same period in 2023.
Depreciation and Amortization
Expedited Freight depreciation and amortization increased $4,917, or 30.6%, to $20,982 for the six months ended June 30, 2024 from $16,065 for the six months ended June 30, 2023. Depreciation and amortization was 3.7% of Expedited Freight operating revenues for the six months ended June 30, 2024 compared to 3.0% for the same period in 2023. The increase in depreciation and amortization expense was primarily the result of purchasing and placing in service new equipment in 2024.
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Insurance and Claims
Expedited Freight insurance and claims increased $2,298, or 11.9%, to $21,621 for the six months ended June 30, 2024 from $19,323 for the six months ended June 30, 2023. Insurance and claims were 3.8% of Expedited Freight operating revenues for the six months ended June 30, 2024 compared to 3.6% for the same period in 2023. The increase in insurance and claims expense was primarily due to an increase in vehicle liability claims, equipment repair claims, and insurance premiums, for the six months ended June 30, 2024 as compared to the same period in 2023. See additional discussion over the consolidated change in self-insurance reserves in the “Other Operations ” section below.
Other Operating Expenses
Expedited Freight other operating expenses increased $2,090, or 4.4%, to $49,133 for the six months ended June 30, 2024 from $47,043 for the six months ended June 30, 2023. Other operating expenses were 8.7% of Expedited Freight operating revenues for the six months ended June 30, 2024 compared to 8.7% for the same period in 2023. Other operating expenses include contract labor, equipment maintenance, facility expenses, legal and professional fees, and other over-the-road costs. The increase in other operating expenses was primarily driven by an increase in software license and subscription fees, partially offset by a decrease in professional fees and maintenance and repair expense for six months ended June 30, 2024 as compared to the same period in 2023.
Income from Operations
Expedited Freight income from operations decreased $15,304, or 27.0%, to $41,444 for the six months ended June 30, 2024 compared to $56,748 for the six months ended June 30, 2023. Income from operations was 7.3% of Expedited Freight operating revenues for six months ended June 30, 2024 compared to 10.5% for the same period in 2023. The decrease in income from operations as a percentage of operating revenues was driven by the change in the mix of freight capacity purchased from Leased Capacity Providers, third-party motor carriers and transportation intermediaries and Company-employed drivers for Network.
Intermodal - Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023
The following table sets forth the financial data of our Intermodal segment for the six months ended June 30, 2024 and 2023:
Intermodal Segment Information
(unaudited and in thousands)
Six Months Ended
June 30, 2024 Percent of Revenue June 30, 2023 Percent of Revenue Change Percent Change
Operating revenue $ 115,591 100.0 % $ 152,420 100.0 % $ (36,829) (24.2) %
Operating expenses:
Purchased transportation 36,616 31.7 37,923 24.9 (1,307) (3.4)
Salaries, wages and employee benefits 29,981 25.9 35,564 23.3 (5,583) (15.7)
Operating leases 9,468 8.2 15,030 9.9 (5,562) (37.0)
Depreciation and amortization 9,339 8.1 9,553 6.3 (214) (2.2)
Insurance and claims 5,225 4.5 5,164 3.4 61 1.2
Fuel expense 4,604 4.0 5,864 3.8 (1,260) (21.5)
Other operating expenses 11,455 9.9 27,807 18.2 (16,352) (58.8)
Total operating expenses 106,688 92.3 136,905 89.8 (30,217) (22.1)
Income from operations $ 8,903 7.7 % $ 15,515 10.2 % $ (6,612) (42.6) %
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Intermodal Operating Statistics
Six Months Ended
June 30, 2024 June 30, 2023 Percent Change
Drayage shipments 127,536 140,645 (9.3) %
Drayage revenue per shipment $ 824 $ 999 (17.5) %
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Operating Revenues
Intermodal operating revenues decreased $36,829, or 24.2%, to $115,591 for the six months ended June 30, 2024 from $152,420 for the six months ended June 30, 2023. The decrease in operating revenues was primarily due to a 9.3% decrease in drayage shipments and a decrease in drayage revenue per shipment of 17.5% as compared to the same period in 2023. The decrease in drayage shipments and lower accessorial revenue to support customers was primarily due to challenged market demand for our services driven by an extended weak freight environment for the six months ended June 30, 2024 as compared to the same period in 2023.
Purchased Transportation
Intermodal purchased transportation decreased $1,307, or 3.4%, to $36,616 for the six months ended June 30, 2024 from $37,923 for the six months ended June 30, 2023. Purchased transportation was 31.7% of Intermodal operating revenues for the six months ended June 30, 2024 compared to 24.9% for the same period in 2023. Intermodal purchased transportation includes Leased Capacity Providers and third-party motor carriers, while Company-employed drivers are included in salaries, wages and employee benefits. The decrease in purchased transportation was primarily due to fewer drayage shipments and the change in the mix of freight capacity purchased from Lease Capacity Providers, third-party motor carriers and Company-employed drivers compared to the same period in 2023.
Salaries, Wages, and Employee Benefits
Intermodal salaries, wages and employee benefits decreased $5,583, or 15.7%, to $29,981 for the six months ended June 30, 2024 compared to $35,564 for the six months ended June 30, 2023. Salaries, wages and employee benefits were 25.9% of Intermodal operating revenues for the six months ended June 30, 2024 compared to 23.3% for the same period in 2023. The decrease in salaries, wages and employee benefits expense was primarily due to a decreased reserve for incentive compensation, fewer Company-employed drivers in response to the lower volumes, and lower salaries and wages as compared to the same period in 2023.
Operating Leases
Intermodal operating leases decreased $5,562, or 37.0%, to $9,468 for the six months ended June 30, 2024 from $15,030 for the six months ended June 30, 2023. Operating leases were 8.2% of Intermodal operating revenues for the six months ended June 30, 2024 compared to 9.9% for the same period in 2023. The decrease in operating leases expense was primarily due to decreased equipment rental expense incurred to support the decreased accessorial revenues for the six months ended June 30, 2024 as compared to the same period in 2023.
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Fuel Expense
Intermodal fuel expense decreased $1,260, or 21.5%, to $4,604 for the six months ended June 30, 2024 from $5,864 for the six months ended June 30, 2023. Fuel expense was 4.0% of Intermodal operating revenues for the six months ended June 30, 2024 compared to 3.8% for the same period in 2023. Intermodal fuel expense decreased due to fewer miles driven by Company-employed drivers and a decrease in the average price of fuel for the six months ended June 30, 2024 as compared to the same period in 2023.
Other Operating Expenses
Intermodal other operating expenses decreased $16,352, or 58.8%, to $11,455 for the six months ended June 30, 2024 compared to $27,807 for the six months ended June 30, 2023. Other operating expenses were 9.9% of Intermodal operating revenues for the six months ended June 30, 2024 compared to 18.2% for the same period in 2023. Other operating expenses include contract labor, equipment maintenance, facility expenses, legal and professional fees, and accessorial storage costs. The decrease in other operating expenses was primarily driven by lower accessorial storage costs incurred to support the decreased accessorial revenues for the six months ended June 30, 2024 as compared to the same period in 2023.
Income from Operations
Intermodal income from operations decreased by $6,612, or 42.6%, to $8,903 for the six months ended June 30, 2024 compared to $15,515 for the six months ended June 30, 2023. Income from operations was 7.7% of Intermodal operating revenue for the six months ended June 30, 2024 compared to 10.2% for the same period in 2023. The decrease in income from operations as a percentage of operating revenues was driven by lower drayage revenue per shipment on fewer drayage shipments and lower operating expenses in response to lower volumes.
Other Operations - Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023
Other operations included a $77,378 operating loss during the six months ended June 30, 2024 compared to a $1,258 operating loss during the six months ended June 30, 2023. The change in the operating loss was primarily driven by $71,942 of professional fees incurred for due diligence and transaction costs incurred in connection with the Omni Acquisition, an increase in incentive compensation and severance costs, offset by a decrease in the reserves for vehicle liability claims.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in conformity with GAAP. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and expenses during the reporting period. On an ongoing basis, management evaluates estimates, including those related to allowance for doubtful accounts and revenue adjustments, deferred income taxes and uncertain tax positions, goodwill, other intangible and long-lived assets, and self-insurance loss reserves. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions. A description of critical accounting policies and related judgments and estimates that affect the preparation of the Condensed Consolidated Financial Statements is set forth in the Annual Report on Form 10-K for the year-ended December 31, 2023. The following supplements the 2023 Annual Form 10-K.
Goodwill
We test goodwill at the reporting unit level for impairment annually as of June 30 and on an interim basis when events occur or circumstances exist that carrying value may not be recoverable. We estimate the fair value of a reporting unit using a discounted cash flow (DCF), or as appropriate, a combination of the DCF and market approach known as the guideline public company approach. Under the DCF model, we calculate the fair value of a reporting unit under the present value of estimated cash flows. The significant assumptions in the DCF model primarily include, but are not limited to, forecast of annual revenue growth rates, annual operating income margin, and the terminal growth rate and the discount rate used to present value the cash flow projections. When determining these assumptions and preparing these estimates, we consider historical performance trends, and the reporting units underlying business and other market trends that may affect the reporting unit. The discount rate is based on the estimated weighted average cost of capital as of the test date of market participants in the industry in which the reporting unit operates. Under the guideline public company method, we estimate the fair value based upon market multiples of revenue and earnings derived from publicly traded companies with similar operating and investment characteristics as the reporting unit.
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Estimating the fair value of a reporting unit involves uncertainties because it requires management to develop numerous assumptions, including assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry economic factors and future business strategy. Changes in projected revenue growth rates, projected operating income margins or estimated discount rates due to uncertain market conditions, loss of one or more key customers, changes in our strategy, changes in technology or other factors could negatively affect the fair value in one or more of our reporting units and result in a material impairment charge in the future.
To assess the reasonableness of the calculated fair values of our reporting units, we also compare the sum of the reporting units’ fair values to our market capitalization and calculate an implied control premium.
2024 Annual Goodwill Analysis
The annual test of goodwill was performed for each of the reporting units with goodwill balances as of June 30, 2024. As a result of the annual test, we recorded goodwill impairment charges totaling $1,092,714 million which all relates to our Omni Logistics reporting unit. This reporting unit was acquired on January 25, 2024. Primarily due to a decrease in the market value of the Company’s common stock during the second quarter of 2024, as a result of many factors including, but not limited to, general market factors, credit rating downgrades, and changes in executive leadership, and the inherent uncertainty associated with the combined enterprise, the Omni Logistics reporting unit’s fair value was determined to be less than its carrying value. As a result, the Company recorded a non-cash impairment charge of $1,092,714 million during the three and six months ended June 30, 2024. The goodwill impairment expense was recorded in the Impairment of goodwill caption on the Condensed Consolidated Statement of Operations. To complete the Omni Logistics goodwill test, we determined the fair value of the reporting unit using the DCF model and a guideline public company approach with 50% of the value determined using the DCF and 50% of the value using the market approach.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Purchase price allocation of Omni Logistics is not yet complete, and as a result, there can be no assurance that there will not be a material impairment charge in the future.
Finite-Lived Intangible Assets and Other Long-Lived Assets
The Company reviews its long-lived assets, which include intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation for recoverability is performed at a level where independent cash flows may be attributed to either an asset or asset group. The analysis differs from our goodwill impairment test in that an intangible or other long-lived asset is only deemed to have occurred if the sum of the forecasted undiscounted cash flows related to the assets being evaluated is less than the carrying value of the assets. If the forecasted net cash flows are less than the carrying value, then the assets are written down to estimated value. We did not identify any impairments of definite-lived assets in the three and six months ended June 30, 2024 and 2023. Changes in the estimates of forecasted net cash flows may result in future asset impairments that could be material to our results of operations.
Liquidity and Capital Resources
We have historically financed our working capital needs, including capital expenditures, with available cash, cash flows from operations and borrowings under the Revolving Credit Facility. In the first quarter of 2024, our then existing credit facility was repaid and extinguished in tandem with the Omni Acquisition. We believe that borrowings under the Revolving Credit Facility and our New Term Loans, together with available cash and internally generated funds, will be sufficient to support our working capital, capital expenditures and debt service requirements over the next twelve months. As previously disclosed and more fully described below and in Note 4, Acquisitions, to the Condensed Consolidated Financial Statements, we incurred significant indebtedness in connection with the Omni Acquisition. This substantial level of debt could have important consequences to our business, including, but not limited to the factors as more fully discussed in the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2023, Item 1A, “Risk Factors” - “Risks Relating to our Indebtedness”. In addition, we frequently utilize operating leases to acquire revenue equipment.
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Senior Secured Notes
In order to finance a portion of the cash consideration payable for the Omni Acquisition and the costs and expenses incurred in connection therewith, GN Bondco, LLC, a Delaware limited liability company and wholly owned subsidiary of Omni (the “Escrow Issuer” and consolidated VIE at December 31, 2023) launched a private offering of $725,000 aggregate principal amount of the Notes, in a transaction exempt from registration under the Securities Act. Upon the closing of the Omni Acquisition, Opco assumed the Escrow Issuer’s obligations under the Notes. The Notes bear interest at a rate of 9.5% per annum, payable semiannually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2024. The Notes were issued at 98.0% of the face amount and will mature on October 15, 2031. The Notes were issued pursuant to an indenture, dated as of October 2, 2023, between the Escrow Issuer and U.S. Bank Trust Company, National Association, as trustee and notes collateral agent.
The Notes are guaranteed on a senior secured basis in an aggregate principal amount in excess of $100,000. Prior to October 15, 2026, Opco may redeem some or all of the Notes at any time and from time to time at a redemption price equal to 100.000% of the principal amount thereof plus the applicable “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after October 15, 2026, Opco may redeem some or all of the Notes at the following prices (expressed as a percentage of principal), plus in each case accrued and unpaid interest, if any, to, but excluding, the redemption date: (a) in the case of a redemption occurring during the 12-month period commencing October 15, 2026, at a redemption price of 104.750%; (b) in the case of a redemption occurring during the 12-month period commencing on October 15, 2027, at a redemption price of 102.375%; and (c) in the case of a redemption occurring on or after October 15, 2028, at a redemption price of 100.000%. In addition, at any time prior to October 15, 2026, Opco may redeem up to 40.000% of the original aggregate principal amount of the Notes in an amount not to exceed the amount of net cash proceeds from one or more equity offerings at a redemption price equal to 109.5 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Upon the occurrence of a “change of control”, Opco will be required to offer to repurchase all of the outstanding principal amount of the Notes at a purchase price of 101.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Senior Secured Term Loan Facility
In order to finance a portion of the cash consideration payable for the Omni Acquisition and the costs and expenses incurred in connection therewith, GN Loanco, LLC, a Delaware limited liability company and wholly owned subsidiary of Omni (the “Escrow Loan Borrower” and consolidated VIE at December 31, 2023), entered into the Credit Agreement. Pursuant to the Credit Agreement, the Escrow Loan Borrower obtained the New Term Loans and the ability to draw down up to $400,000 under the Revolving Credit Facility. The New Term Loans bear interest based, at Opco’s election, on (a) SOFR plus an applicable margin or (b) the base rate plus an applicable margin. The base rate is equal the highest of the following: (i) the prime rate; (ii) 0.50% above the overnight federal funds rate; and (iii) the one-month SOFR plus 1.00%. The applicable margin for SOFR loans is 4.50% and the applicable margin for base rate loans is 3.50%. The New Term Loans are subject to customary amortization of 1.00% per year. The New Term Loans were issued at 96.0% of the face amount and will mature on December 19, 2030.
No borrowings under the Revolving Credit Facility were made in connection with the Omni Acquisition. The Revolving Credit Facility will mature on January 25, 2029. Loans made under the Revolving Credit Facility bear interest based, at Opco’s election, on (a) SOFR plus an applicable margin or (b) the base rate plus an applicable margin. Until delivery of a compliance certificate in respect of the fiscal quarter ending June 30, 2024, the applicable margin for SOFR loans is 4.25% and the applicable margin for base rate loans is 3.25%. Thereafter, the applicable margin can range from 3.75% to 4.25% for SOFR loans and from 2.75% to 3.25% for base rate loans, in each case depending on Opco’s first lien net leverage ratio, as set forth in the Credit Agreement. Upon the closing of the Omni Acquisition, Opco assumed the Escrow Loan Borrower’s obligations under the Credit Agreement, which were further secured by certain guarantors. Opco’s obligations under the Credit Agreement are guaranteed on a senior secured basis by us and each of Opco’s existing and future domestic subsidiaries (subject to customary exceptions).
On January 25, 2024, the date of the Omni Acquisition, both GN Bondco, LLC and GN Loanco, LLC ceased operations and their debt and related funds were transferred to Opco, a consolidated subsidiary of us.
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On February 12, 2024, Opco and the parties to the Credit Agreement entered into Amendment No. 2 to the Credit Agreement, which (a) modifies the financial performance covenant in the Credit Agreement by temporarily increasing the 4.50:1.00 maximum consolidated first lien net leverage ratio permitted by the covenant to (i) 6.00:1.00 (for the second and third quarters of 2024), (ii) 5.50:1.00 (for the fourth quarter of 2024), (iii) 5.25:1.00 (for the first quarter of 2025), (iv) 5.00:1.00 (for the second quarter of 2025) and (v) 4.75:1.00 (for the third quarter of 2025) and (b) reduces the revolving credit commitments available under the Credit Agreement from an aggregate principal amount of $400,000 to an aggregate principal amount of $340,000. Amendment No. 2 also amends certain other terms of the Credit Agreement in connection with the foregoing. Prior to the effectiveness of Amendment No. 2 on February 12, 2024, Opco repaid $80,000 aggregate principal amount of the New Term Loans outstanding under the Credit Agreement, together with all accrued and unpaid interest thereon.
Both the Notes and Revolving Credit Facility contain covenants that, among other things, restrict the ability of us, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the credit agreement. The Revolving Credit Facility’s terms also include a financial covenant which requires us to maintain a specific leverage ratio. As of the date of this report, we were in compliance with all aforementioned covenants.
Tax Receivable Agreement
In connection with the Omni Acquisition, we, Opco, Omni Holders and certain other parties entered into the Tax Receivable Agreement, which sets forth the agreement among the parties regarding the sharing of certain tax benefits realized by us as a result of the Omni Acquisition. Pursuant to the Tax Receivable Agreement, we are generally obligated to pay certain Omni Holders 83.5% of (a) the total tax benefit that we realize as a result of increases in tax basis in Opco’s assets resulting from certain actual or deemed distributions and the future exchange of units of Opco for shares of securities of us (or cash) pursuant to Opco’s operating agreement that became effective as of the Closing, (b) certain pre-existing tax attributes of certain Omni Holders that are corporate entities for tax purposes, (c) the tax benefits that we realize from certain tax allocations that correspond to items of income or gain required to be recognized by certain Omni Holders, and (d) other tax benefits attributable to payments under the Tax Receivable Agreement. Payment obligations under the Tax Receivable Agreement rank pari passu with all unsecured obligations but senior to any future tax receivable or similar agreement entered into by us.
The term of the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired unless we elect to terminate the Tax Receivable Agreement early (or it is terminated early due to a change of control or insolvency event with respect to us or a material breach by us of a material obligation under the Tax Receivable Agreement).
Upon such an early termination, we will be required to make a payment equal to the present value of the anticipated future payments to be made by it under the Tax Receivable Agreement (based upon certain assumptions and deemed events set forth in the Tax Receivable Agreement). In the event of a change of control, under certain circumstances, we may elect to pay the early termination payment over a period of 15 years, with the payments increased to reflect the time value of money.
Cash Flows
Continuing Operations
Net cash used in operating activities of continuing operations was $96,924 for the six months ended June 30, 2024 compared to net cash provided by operating activities of $117,454 for the six months ended June 30, 2023. The increase in net cash used in operating activities was primarily due to the change in net income from operations after consideration of non-cash items and the increase in accounts receivable and other current and noncurrent assets, partially offset by the change in accounts payable and accrued expenses.
Net cash used in investing activities was $1,583,406 for the six months ended June 30, 2024 compared to $70,368 for the six months ended June 30, 2023. Capital expenditures for the first six months of 2024 were $19,396, which primarily related to the purchase of technology and operating equipment. Capital expenditures for the first six months of 2023 were $16,836, which primarily related to the purchase of technology and operating equipment. Investing activities of continuing operations for the first six months of 2024 included the Omni Acquisition for a preliminary purchase price of $2,313,653, while investing activities for the first six months of 2023 included the acquisition of Land Air for a preliminary purchase price of $56,567.
Net cash used in financing activities of continuing operations was $162,957 for the six months ended June 30, 2024 compared to $74,627 for the six months ended June 30, 2023. The change in the net cash used in financing activities of continuing operations was primarily due to the payment of debt issuance costs, payments on the New Term Loans, and payment of an earn-out liability.
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Discontinued Operation
Net cash used in operating activities of discontinued operation was $4,876 for the six months ended June 30, 2024 compared to net cash provided by operating activities for discontinued operations of $12,112 for the six months ended June 30, 2023. The change in net cash provided by operating activities of discontinued operation was primarily related to a decrease in net income of discontinued operation after consideration of non-cash items. The sale of Final Mile was completed on December 20, 2023.
Net cash used in investing activities of discontinued operation was $0 for the six months ended June 30, 2024 compared to $739 for the six months ended June 30, 2023. The change in the net cash used in investing activities of discontinued operation was due to the sale of Final Mile, which was completed on December 20, 2023.
Net cash used in financing activities of discontinued operation was $0 for the six months ended June 30, 2024 compared to $11,373 for the six months ended June 30, 2023. The change in the net cash used in financing activities of discontinued operation was due to decreased contributions to the parent.
Stock Repurchase Program
During the six months ended June 30, 2024, we did not repurchase any shares of our common stock. During the six months ended June 30, 2023, we repurchased 759 shares of our common stock for approximately $79,792 through open market transactions. All shares received were retired upon receipt, and the excess of the purchase price over the par value per share was recorded to “Retained (Deficit) Earnings” in our Condensed Consolidated Balance Sheets.
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Forward-Looking Statements
This report contains “forward-looking statements,” as defined in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. Some forward-looking statements may be identified by use of such terms as “believes,” “anticipates,” “intends,” “plans,” “estimates,” “projects” or “expects.” In this Form 10-Q, forward-looking statements include, but are not limited to, any statements regarding In this Form 10-Q, forward-looking statements include, but are not limited to, any statements regarding: (i) any projections of earnings, revenues, other financial items or related accounting treatment, or cost reduction measures, including any impact of the Omni Acquisition on our financial statements; (ii) future performance, including any expectations about our ability to increase shipments; (iii) our ability to maintain compliance with the covenants of our indebtedness instruments; (iv) our yield management process, any improvements in operating efficiencies and our ability to create synergies across our services; (v) fuel shortages, changes in fuel prices and volatility in fuel surcharge revenue, and the impact on our business; (vi) consumer demand and inventory levels, and the impact on freight volumes; (vii) future insurance, claims and litigation and any associated estimates or projections; (viii) our ability to accelerate the expansion of the Company’s terminal footprint; (ix) certain tax and accounting matters, including the impact on our financial statements and our ability realize remaining net deferred tax assets; (x) intended expansion through acquisitions or greenfield startups, and the impact of any such acquisition on our business; (xi) our ability to use key performance metrics to gauge growth strategies; (xii) future business, economic conditions or performance, as well as industry projections; (xiii) competition, including our specific advantages, the capabilities of our segments, including the integration of services and our geographic location; (xiv) expectations regarding plans, strategies, and objectives of management for future operations and (xv) any belief and any statements of assumptions underlying any of the foregoing.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, the outcome and related impact of the Omni Acquisition, continued weakening of the freight environment, future debt and financing levels, the outcome of any legal proceedings related to the Omni Acquisition, our substantial indebtedness, our ability to manage our growth and ability to grow, in part, through acquisitions while being able to successfully integrate such acquisitions, our ability to secure terminal facilities in desirable locations at reasonable rates, more limited liquidity than expected which limits our ability to make key investments, the creditworthiness of our customers and their ability to pay for services rendered, our inability to maintain our historical growth rate because of a decreased volume of freight or decreased average revenue per pound of freight moving through our network, the availability and compensation of qualified Leased Capacity Providers and freight handlers as well as contracted, third-party motor carriers needed to serve our customers’ transportation needs, our inability to manage our information systems and inability of our information systems to handle an increased volume of freight moving through our network, the occurrence of cybersecurity risks and events, market acceptance of our service offerings, claims for property damage, personal injuries or workers’ compensation, enforcement of and changes in governmental regulations, environmental, tax, insurance and accounting matters, the handling of hazardous materials, changes in fuel prices, loss of a major customer, increasing competition and pricing pressure, our dependence on our senior management team and the potential effects of changes in employee status, seasonal trends, the occurrence of certain weather events, restrictions in our charter and bylaws, the cost of new equipment, the impact and efficacy of our disclosure controls and procedures, and the risks described in our Annual Report on Form 10-K for the year ended December 31, 2023. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. We undertake no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
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