Publishes Investor Q&A and Supplemental
Presentation
Forward Air Corporation (NASDAQ: FWRD) (“Forward”) today
published Q&A and a supplementary investor presentation to
provide additional information about the previously announced
transaction with Omni Logistics (“Omni”). All related materials are
available at ir.forwardaircorp.com.
“The transformational combination with Omni is the natural next
step in our Grow Forward strategy to expand our customer base and
will deliver significant long-term value for Forward Air
shareholders,” said Tom Schmitt, Chairman, President and Chief
Executive Officer of Forward. “This transaction will advance
Forward’s category leadership in the expedited LTL market by making
high-value, competitively priced freight accessible to more
customers. We also expect the combined company to benefit from an
enhanced financial profile with significantly increased revenue and
growth, supported by meaningful synergies. We look forward to
continuing to engage with the investment community to communicate
the benefits of this transaction.”
The full contents of the Q&A follow:
Q: What is the strategic rationale for
this acquisition? How does it further strengthen Forward’s status
as an LTL provider of choice?
The combination of Forward and Omni creates a
scaled, premier, less-than-truckload (“LTL”) enterprise focused on
providing customers with multimodal solutions for complex and
high-service freight needs.
The integration of Omni will drive
high-margin freight to Forward’s LTL network and provide Forward
with direct access to more than 7,000 customers in high-growth,
high-value end industries and an increased domestic footprint.
Forward will have a broader portfolio of essential logistics
services, the majority of which will help drive incremental freight
into Forward’s LTL network. Omni’s customer base has significant
domestic LTL requirements, and will benefit from Forward’s LTL
Precision Execution, which provides customers with the fastest
transit times, best on-time performance, and lowest claims rates in
the industry.
The acquisition will drive significant cost
and revenue synergies, be accretive to Forward’s long-term growth
and double its scale on a larger, denser freight network.
Q: Why Omni Logistics? What percentage of
their business is LTL?
Omni delivers time-sensitive high-value
freight and provides supply chain and logistics solutions into and
throughout North America with a scaled platform and sizeable
existing retail sales force. In addition, Omni has a strong track
record of execution, having doubled revenue on an organic basis
since 2020.
Approximately 35% of Omni’s business comes
from LTL freight, and Omni’s sales force often uses Forward’s
network. The transaction is complementary and combining Omni’s
retail generated LTL business with Forward’s wholesale network will
capture both Omni and Forward’s margins for the same topline
revenue.
Q: How does this transaction impact
Forward’s existing customer relationships?
Forward’s team knows its customer base well.
It is a dynamic time in the freight marketplace and this
transaction positions Forward to meet the increased need for
reliable LTL solutions, including by adding deep retail sales
expertise to an already strong wholesale sales and account
management team.
The acquisition removes an organization’s
gross margin between shipper and destination, allowing Forward to
go directly to shippers while maintaining and growing with historic
wholesale customers. It also positions Forward for long-term growth
of its LTL business model for shipments of consequence by expanding
the customer base to include shippers, 3PL, forwarders and
airlines.
To drive growth in both the wholesale and
retail markets, Forward will go to market with two sales
organizations with channel expertise. The combined company’s strong
commercial engine enables pro-active cross sell revenue synergies
in LTL along with complementary Omni services.
Since the announcement, feedback from many
customers of both companies has been highly favorable. Forward and
Omni share the same relentless focus on delivering best-in-class
service to customers, and both companies are excited to advance
that reputation together.
Q: What are the expected
synergies?
The combination is expected to generate
opportunities to realize up to $125 million of total run-rate
EBITDA synergies (excluding approximately $36 million of
non-recurring costs to achieve those synergies). This includes up
to approximately $75 million of potential run-rate cost synergies,
up to 80% of which are expected to be realized within the first six
months following close and the remainder of which are expected to
be realized by the end of 2025. Total synergies also include up to
$50 million in positive revenue-based EBITDA synergies,
approximately 60% of which would be realized in the 24 months
post-close of the transaction1.
With the combination of both Forward and
Omni’s margins for the same topline revenue, the majority of the
projected revenue synergies are expected to drive a higher margin
for the combined company.
Taken together, the company expects to
realize 30% of the revenue-based EBITDA synergies in year one, 60%
in year two and to fully realize them by the end of year three
post-close.
Q: What is the path to integration? How
much execution risk do you expect?
Forward has a proven integration track record
and a dedicated team of representatives from both companies are
working together on a comprehensive integration plan so we can hit
the ground running when the transaction closes. Forward and Omni
have worked together as partners for many years, and already have a
good understanding of each company’s complementary strengths,
including service offerings, teams, geographic footprint and
capacity.
Approximately 60% of cost synergies are from
network optimization. The remaining cost synergies will come from
facilities consolidation, SG&A rationalization, technology
enhancement and insourcing Omni’s third-party domestic transport
spend.
Revenue synergies will be derived from a plan
centered on cross-selling potential by delivering Forward’s
expedited LTL network into Omni’s customer base, growing expedited
LTL share by combining Forward’s LTL direct sellers with Omni’s
business development team, and best-in-class account management
that is demonstrated with a 98% customer retention rate.
Forward is confident in its ability to sell
its expedited LTL network to the Omni customer base given the
combined salesforce is already trained in selling LTL and now has a
significantly larger platform to market.
Q: When will the transaction be accretive
to Forward’s earnings and how accretive will it be?
While the transaction is expected to be 5%
dilutive to cash EPS in 2024 (the first full year after closing),
it is expected to be highly accretive in 2025, delivering accretion
of 9% based on projected realized synergies.
Q: What will be the ownership structure of
the combined company?
Omni shareholders will receive at closing
16.5% of Forward’s common equity (on a fully diluted, as exchanged
basis) and non-voting perpetual convertible preferred equity that,
if Forward’s shareholders approve conversion following closing,
will automatically convert into an additional 21.2% of Forward’s
common equity (on a fully-diluted, as exchanged basis). In total,
Omni shareholders will receive 15.8 million shares of Forward
common stock if shareholders approve the conversion of the
preferred equity (representing 37.7% of Forward’s common equity on
a fully-diluted, as exchanged basis).
Importantly, Omni’s two largest shareholders,
Ridgemont Equity Partners (“Ridgemont”) and EVE Partners, LLC
(“EVE”), have a vested interest in the successful upside of Forward
due to the predominantly stock consideration with a fixed number of
shares. Overall, Omni shareholders are rolling more than 90% of
their equity into Forward and will face any go-forward risk
alongside Forward’s other shareholders. On an as-converted basis,
no individual Omni shareholder or group of affiliated Omni
shareholders will own more than 13% of the pro forma company.
Q: What are the mechanics of the preferred
stock conversion and will there be additional dilution to existing
Forward shareholders following the conversation of the convertible
preferred stock?
The Forward stock consideration payable to
Omni’s shareholders will consist of common stock and a newly
designated series of perpetual non-voting convertible preferred
stock (the “preferred stock”).
The shares of the preferred stock will be
automatically converted into Forward common stock if conversion is
approved by Forward shareholders following the closing of the
transaction. If approved for conversion, the convertible preferred
shares will be converted on a one‐for‐one basis into Forward common
stock, representing an additional 21.2% of Forward’s common equity
on a fully-diluted, as exchanged basis and the preferred stock will
be cancelled.
In addition, the number of shares, including
those underlying preferred stock, issued to Omni shareholders is
fixed at signing and does not change based on Forward’s stock
price.
Q: What is Forward’s target leverage
ratio? How quickly do you expect to achieve that following the
transaction?
The combined company will have a gross
leverage of approximately 3.5x and net leverage of approximately
3.3x, in each case inclusive of run-rate cost synergies2. Strong
cash flow generation is anticipated to drive rapid de-leveraging to
below 2.0x by the end of 2025 based on projected realized synergies
at the time.
Both Forward and Omni are highly cash
generative with minimal capital expenditure, at approximately 2% of
revenue, and historical cash conversion rate of approximately
80-90% over the past three years3. The combined company has a
projected BB credit rating profile in line with select other
freight sector peers.
Forward has historically maintained minimal
leverage and as a matter of policy, will seek to de-lever and
maintain leverage below 2.0x.
Q: What are the conditions to close the
transaction?
The transaction has been approved by the
Boards of Directors of both companies and is expected to close in
the second half of 2023. The transaction is subject to the receipt
of regulatory approvals and the satisfaction of other customary
closing conditions.
The merger agreement also contains customary
termination rights, which will be further described in Forward’s
current report on Form 8-K.
Advisors
Morgan Stanley & Co. LLC and Citi are serving as financial
advisors to Forward, and Cravath, Swaine & Moore LLP is serving
as legal counsel.
About Forward Air
Forward Air is a leading asset-light provider of transportation
services across the United States, Canada and Mexico. We provide
expedited less-than-truckload (“LTL”) services, including local
pick-up and delivery, shipment consolidation/deconsolidation,
warehousing, and customs brokerage by utilizing a comprehensive
national network of terminals. In addition, we offer final mile
services, including delivery of heavy-bulky freight, truckload
brokerage services, including dedicated fleet services; and
intermodal, first-and last-mile, high-value drayage services, both
to and from seaports and railheads, dedicated contract and
Container Freight Station warehouse and handling services. We are
more than a transportation company. Forward is a single resource
for your shipping needs. For more information, visit our website at
www.forwardaircorp.com.
Note Regarding Forward-Looking Statements
This press release includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, as amended. These statements may
reflect Forward’s expectations, beliefs, hopes, intentions or
strategies regarding, among other things, the potential transaction
between Forward and Omni, the expected timetable for completing the
potential transaction, the benefits and expected cost and revenue
synergies of the potential transaction (including the timing for
realizing any such synergies and the conversion of revenue
synergies to adjusted EBITDA) and future opportunities for the
combined company, as well as other statements that are other than
historical fact, including, without limitation, statements
concerning future financial performance, future debt and financing
levels (including the achievement of targeted deleveraging within
the expected time frames or at all), investment objectives,
implications of litigation and regulatory investigations and other
management plans for future operations and performance. Words such
as “anticipate(s),” “expect(s)”, “intend(s)”, “plan(s)”,
“target(s)”, “project(s)”, “believe(s)”, “will”, “aim”, “would”,
“seek(s)”, “estimate(s)” and similar expressions are intended to
identify such forward-looking statements.
Forward-looking statements are based on management’s current
expectations, projections, estimates, assumptions and beliefs and
are subject to a number of known and unknown risks, uncertainties
and other factors that could lead to actual results materially
different from those described in the forward-looking statements.
Forward can give no assurance that its expectations will be
attained. Forward’s actual results, liquidity and financial
condition may differ from the anticipated results, liquidity and
financial condition indicated in these forward-looking statements.
We caution readers that any such statements are based on currently
available operational, financial and competitive information, and
they should not place undue reliance on these forward-looking
statements, which reflect management’s opinion only as of the date
on which they were made. These forward looking statements are not a
guarantee of future performance and involve risks and
uncertainties, and there are certain important factors that could
cause Forward’s actual results to differ, possibly materially, from
expectations or estimates reflected in such forward-looking
statements, including, but without limitation:
- the parties’ ability to consummate the potential transaction
and to meet expectations regarding the timing and completion
thereof;
- the satisfaction or waiver of the conditions to the completion
of the potential transaction, including the receipt of all required
regulatory approvals or clearances in a timely manner and on terms
acceptable to Forward;
- the risk that the parties may be unable to achieve the expected
strategic, financial and other benefits of the potential
transaction, including the realization of expected revenue and cost
synergies, the conversion of revenue synergies to adjusted EBITDA
and the achievement of deleveraging targets, within the expected
time-frames or at all;
- the risk that the committed financing necessary for the
consummation of the potential transaction is unavailable at the
closing, and that any replacement financing may not be available on
similar terms, or at all;
- the risk that the businesses will not be integrated
successfully or that integration may be more difficult,
time-consuming or costly than expected;
- the risk that operating costs, customer loss and business
disruption (including, without limitation, difficulties in
maintaining relationships with employees, customers, clients or
suppliers) may be greater than expected following the potential
transaction;
- the risk that, if Forward does not obtain the necessary
shareholder approval for the conversion of the perpetual non-voting
convertible preferred stock, Parent will be required to pay an
annual dividend on such outstanding preferred stock;
- the risks associated with being a holding company with the only
material assets after completion of the potential transaction being
the interest in the combined business and, accordingly, dependency
upon distributions from the combined business to pay taxes and
other expenses;
- the requirement for Forward to pay certain tax benefits that it
may claim in the future, and the expected materiality of these
amounts;
- risks associated with organizational structure, including
payment obligations under the tax receivable agreement, which may
be significant, and any accelerations or significant increases
thereto;
- the inability to realize all or a portion of the tax benefits
that are currently expected to result from the acquisition of
certain corporate owners of Omni, certain pre-existing tax
attributes of Omni owners and tax attributes that may arise on the
distribution of cash to other Omni owners in connection with the
potential transaction, as well as the future exchanges of units of
Forward’s operating subsidiary and payments made under the tax
receivables agreement;
- increases in interest rates;
- changes in Forward’s credit ratings and outlook;
- risks relating to the indebtedness Forward expects to incur in
connection with the potential transaction and the need to generate
sufficient cash flows to service and repay such debt;
- the ability to generate the significant amount of cash needed
to service the indebtedness;
- the limitations and restrictions in surviving agreements
governing indebtedness;
- risks associated with the need to obtain additional financing
which may not be available or, if it is available, may result in a
reduction in the ownership of current Forward shareholders;
and
- general economic and market conditions.
These and other risks and uncertainties are more fully discussed
in the risk factors identified in “Item 1A. Risk Factors” in Part I
of Forward’s most recently filed Annual Report on Form 10-K, and as
may be identified in Forward’s Quarterly Reports on Form 10-Q and
current reports on Form 8-K. Except to the extent required by law,
Forward expressly disclaims any obligation to release publicly any
updates or revisions to any forward-looking statements contained
herein to reflect any change in Forward’s expectations with regard
thereto or change in events, conditions or circumstances on which
any statement is based.
Note Regarding Non-GAAP Measures
To supplement the financial measures prepared in accordance with
generally accepted accounting principles in the United States
(“GAAP”), we have included adjusted EBITDA leverage ratio, a
non-GAAP financial measure, in this presentation. Because this
non-GAAP measure excludes certain items as described below, it may
not be indicative of the results that Forward expects to recognize
for future periods. As a result, this non-GAAP measure should be
considered in addition to, and not a substitute for, financial
information prepared in accordance with GAAP. Please see below for
a reconciliation of each of this non-GAAP measure to its most
directly comparable financial measure calculated and presented in
accordance with GAAP.
Forward Air Non-GAAP Reconciliation
6 Months Ended 6/30/22
FY2022
6 Months Ended 6/30/23
6/30/23
LTM (1)
GAAP Net Income
$
98
$
193
$
56
$
151
Interest Expense
$
2
$
5
$
5
$
8
Income Tax Expense
$
33
$
68
$
19
$
54
Depreciation & Amortization
$
23
$
47
$
28
$
53
EBITDA
$
156
$
313
$
109
$
267
Share Based Compensation (2)
$
6
$
11
$
6
$
12
Due Diligence and Integration Costs
(3)
$
-
$
-
$
7
$
7
Reduction in Workforce (4)
$
-
$
-
$
2
$
2
Adjusted EBITDA
$
162
$
325
$
124
$
287
Figures may not foot due to rounding
Omni Logistics Non-GAAP Reconciliation
EBITDA Reconciliation ($MM)
6 Months Ended 6/30/22
FY2022
6 Months Ended 6/30/23
6/30/23
LTM (1)
GAAP Net Income
$
19
$
16
$
(103
)
$
(106
)
Interest Expense
$
36
$
102
$
79
$
146
Depreciation & Amortization
$
23
$
56
$
32
$
65
Income Tax Benefit / Expense
$
3
$
6
$
(1
)
$
2
EBITDA
$
81
$
180
$
8
$
107
Pre-Acquisition Earnings and Adjustments
(5)
$
18
$
24
$
(0
)
$
5
Fair Value Adjustment of Contingent
Consideration (6)
$
7
$
(18
)
$
12
$
(13
)
Transaction Expenses and Integration Costs
(7)
$
15
$
32
$
12
$
29
Other Normalization EBITDA Adjustments
(8)
$
(4
)
$
9
$
12
$
26
Pro Forma EBITDA Adjustments (9)
$
20
$
35
$
11
$
27
Adjusted EBITDA
$
137
$
263
$
55
$
181
Figures may not foot due to rounding
Combined Company Non-GAAP Reconciliations
Combined Company Debt ($MM)
6/30/23 LTM(1)
New Debt Financing (Giving Effect to the
Closing of the Transaction and Related Financing) (11)
1,850
$
Forward Air Finance Lease Liabilities
$
35
Omni Logistics Finance Lease
Liabilities
$
14
Total Combined Company Debt (Giving Effect
to the Closing of the Transaction and Related Financing)
$
1,899
Combined Company Adjusted EBITDA
Including Synergy Opportunities ($MM)
6/30/23
LTM (1)
Forward Air Adjusted EBITDA
$
287
Omni Logistics Adjusted EBITDA
$
181
Run-Rate Cost Synergy
Opportunities (10)
$
75
Combined Company Adjusted EBITDA Including
Full Realization of Cost Synergy Opportunities (10)
$
544
Run-Rate EBITDA Impact of Revenue Synergy
Opportunities (10)
$
50
Combined Company EBITDA Assuming Full
Realization of Revenue and Cost Synergy Opportunities (10)
$
594
Total Combined Company Debt / Combined
Company Adjusted EBITDA Including Full Realization of Cost Synergy
Opportunities (10)
3.5x
Figures may not foot due to rounding
Non-GAAP Reconciliation Footnotes
- June 30, 2023 LTM figures calculated as (i) such figures for
the fiscal year ended December 31, 2022 plus (ii) such figures for
the six months ended June 30, 2023 less (iii) such figures for the
six months ended June 30, 2022
- Forward Air Share Based Compensation – relates to non-cash
stock compensation expense
- Forward Air Due Diligence and Integration Costs – represents
advisor fees and due diligence costs related to executed and
terminated acquisitions as well as integration-related expenses of
acquired businesses
- Forward Air Reduction in Workforce – represents impact of a
Forward Air 2023 reduction in workforce initiative
- Omni Logistics Pre-acquisition earnings and adjustments –
represents earnings of certain entities acquired during the
applicable period, inclusive of due diligence adjustments,
attributable to the portion of such period occurring prior to the
consummation of their respective acquisition
- Omni Logistics Fair Value Adjustment of Contingent
Consideration – represents removal of fair value adjustments for
performance based earn-out payments for certain acquired
entities
- Omni Logistics Transaction Expenses and Integration Costs –
represents advisor fees and due diligence costs related to executed
and terminated acquisitions as well as integration-related expenses
of certain acquired businesses
- Omni Logistics Other normalization EBITDA adjustments –
represents items considered non-operational or non-recurring such
as non-recurring bad debt expenses, sponsor and board fees, FX
gains and losses, and other non-recurring and non-cash
expenses
- Omni Logistics Pro Forma EBITDA Adjustments – represents pro
forma impact of strategic initiatives, updated customer pricing,
and profitability initiatives including facilities consolidations
and a reduction-in-force in 2022 and 2023, as if each of the
foregoing was implemented as of the first day of the applicable
period
- Assumes full realization of expected synergy opportunities,
based on management estimates. Synergy opportunities are exclusive
of one-time costs necessary to achieve such synergies, estimated to
be approximately $36MM. Estimated revenue-based EBITDA synergy
opportunities have been converted into EBITDA estimates assuming
the full realization of the revenue synergy opportunities, based on
an assumed margin percentage of 21%. This assumed margin percentage
is based on management’s estimates and an analysis of incremental
margin by revenue segment
- Each of Forward Air’s and Omni Logistics’ existing credit
facilities is expected to be repaid at closing
______________________ 1 Takes into account both expected
revenue synergies and expected revenue dis-synergies 2 Based on the
combined company balance sheet for the twelve months ended June 30,
2023. 3 Cash conversion defined as Adj. EBITDA – capital
expenditures / Adj. EBITDA
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