Good day, and welcome to the Forward Air Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open following the presentation. Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air's website. With us this morning are Interim CEO, Michael Hance; and CFO, Rebecca Garbrick. By now, you should have received the press release announcing our fourth quarter 2023 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market closed. Forward Air has determined that it is unable to file its annual report on Form 10-K for the year ended December 31, 2023, by the prescribed due date without unreasonable effort or expense as the company requires additional time to complete its financial statement reporting process in light of recent significant company transactions. This process includes finalizing the accounting treatment and related disclosures of the debt issued in connection with the acquisition of Omni, which impacts the company's balance sheet as of December 31, 2023, and statement of cash flows for the year then ended. The company expects to file its annual report on Form 10-K for the year ended December 31, 2023, within the extension period of 15 calendar days as provided under Rule 12b-s25 under the Securities Exchange Act of 1934 as amended. Please be aware that certain statements in the company's earnings press release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts, including statements regarding our first quarter 2024 and fiscal year 2024. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, unless required by law. During the call, there may also be a discussion of financial metrics that do not conform to U.S. generally accepted accounting principles or GAAP. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued which is available in the Investors tab on our website. Now I'd like to turn the conference over to Michael Hance. Michael?

Good morning, everyone. Thank you for joining the call today. Before we jump into the quarter, I just wanted to take a few moments to acknowledge the recent changes at Forward and introduce myself. Forward has been navigating a period of turbulence in the freight market and within our company. The past few months have been bumpy, but I am confident that is behind us, and we are all united and energized by the opportunities ahead. We are moving forward. We appreciate the support we've received from many listening to the call today. We value your feedback and perspectives. And as you've seen from recent announcements, our Board has taken decisive action to ensure Forward is on the right track for the future. Earlier this month, the Board appointed me interim CEO in addition to my position as Chief Legal Officer and Secretary. Now I've been with this company for 18 years in a number of different roles in legal and HR and have a strong understanding of the transportation industry in Forward's business. Taking on this role is personal for me. It is a position of trust. I care deeply about this company's success and the great people who come to work every day and serve our customers. I know that our people, our customers and our shareholders are counting on us. My mandate during this period as interim CEO is to make sure we have the appropriate leadership to move forward while our Board's dedicated search committee promptly identifies a top-quality CEO to run the company during the next phase of our future growth and development. I want to be clear with you. We are not waiting or standing still during this interim period. Instead, we are rolling up our sleeves and doing the challenging and exciting work of integrating Forward and Omni and positioning us to quickly capture the value this acquisition has made possible. I have the privilege of working with an incredibly capable management team, now complemented by colleagues from Omni. We are laser-focused on integration. Over my 18 years with the company, I have come to firmly believe that the key to Forward’s success lies squarely with the dedicated people consistently delivering incredible service to our customers for their mission-critical freight. Our LTL customers expect and enjoy the highest levels of service and lowest claims and damage ratios in the industry. This continued without interruption during the last year and it's not changing. We have been delighted to learn that Omni's success was built on the same foundation of high-quality service. A key part of my new role is to ensure that we do not waver in our collective commitment to this core principle and that it acts as the cornerstone of our integration plan. Now I've been in my new role for about 3 weeks now. So I won't attempt to be exhaustive on this call. Here's what we're going to do. Today, we're going to provide you with an overview of Forward Air's Q4 financial performance as well as the current performance of the legacy Forward Air business and our path to deleveraging through prudent capital allocation. We will then provide updates on customer retention, Omni integration and the combined company. Now the information we provide about Omni's performance and our integration progress will be high-level at this point, but we are committed to transparency and providing you with more detailed updates on both topics as we move forward. Before turning the call over to Rebecca, I do want to note upfront that during this period of transition, we will not be issuing quarterly guidance and we'll evaluate when the timing is right to provide it on a go-forward basis.

Thanks, Michael, and good morning, everyone. I'll start by briefly touching on the 10-K, which was mentioned at the top of the call. We will require additional time to complete our financial reporting and file our 2023 Form 10-K. In light of the compressed closing timeline of the Omni acquisition, we expect to file it within the extension period of 15 calendar days. What remains outstanding is finalizing the technical accounting treatment of the debt connected with the acquisition, which would impact our balance sheet at December 31, 2023, and statement of cash flows for the year then ended. However, we are confident that the outstanding item will have no impact on our income statement. Let's move on to reviewing the fourth quarter. In Q4, we announced the sale of our Final Mile business to Hub Group in December for an estimated total cash consideration of $260 million. Our results are adjusted for the sale of that business, which had an impact on our fourth quarter guidance. As a result of the Omni transaction, our reported fourth quarter results reflect two one-off items that impact profitability and free cash flow generation. The first are the professional fees or transaction costs incurred in connection with the acquisition of Omni Logistics in the amount of $30 million. While all these costs were incurred in 2023, the company expects to have transaction costs in the first quarter in connection with the closing of the acquisition in addition to integration costs. The second are the net interest payments due on table on the high-yield notes and the Term Loan B in the amount of $21 million. The $21 million reflects the interest expense offset by the interest income earned on the investment of the proceeds. Both the high-yield notes and the Term Loan B closed into escrow during the fourth quarter. As we continue to execute our growth strategies in the fourth quarter, we saw positive trends in our less than Truckload business with pounds per day growth of more than 6% over the same period last year. Our freight quality also improved as weight per shipment increased more than 11% to GBP 815 over the prior year period. During the fourth quarter, we saw a 2.5% increase in the revenue per shipment, excluding fuel, and an 8% decrease in the revenue per hundredweight, excluding fuel. The decline in the revenue per hundredweight, excluding fuel, was primarily driven by the shift in the business mix as we execute upon the expansion of our door-to-door solution. Challenging market conditions persisted throughout the quarter, particularly in the intermodal and Truckload brokerage lines of businesses, which led to decreased customer demand for these services, a pattern that we've seen since the second quarter. This resulted in Q4 revenue of $338 million on a consolidated continuing operations basis compared to $403 million, a 16% decline. This was within the guidance range of a 9% to 19% decline. Operating income on an adjusted basis was $32.6 million compared to $58.4 million for the fourth quarter, which reflects the add-back of the one-off costs that I mentioned earlier. We reported adjusted net income per diluted share on a continuing operations basis of $0.81 above the guidance range of $0.78 to $0.80. Our free cash flow for the fourth quarter was $48.9 million compared to $43.5 million for the same period in the prior year. The free cash flow was impacted by the payment of the professional fees incurred in connection with the acquisition of Omni. Looking to 2024, in January, as noted in our earlier press release, weight per shipment increased 9.8%. Pounds per day also increased 9.2% compared to the same period last year. Revenue per ton mile increased 1.9% over the prior year, excluding fuel. For the first few weeks in February, our pounds per day increased 8% over the same period last year. This increase excludes the impact of folding the Omni network into the Forward network. The 5.9% general rate increase we announced in December went into effect in February and will enable us to continue to serve customers with the same precision execution in an environment with rising operating costs. The capture rate was higher than 222, and the rate increase is commensurate with the increase in operating costs expected for 2024. With regards to our capital position, we are still awaiting 2023 audited financials, but our net leverage ratio at the close of the transaction was estimated to be 5.2 times. This is based on our leverage formula used in the lender's net debt-to-EBITDA covenant. The calculation includes the full realization of cost synergy opportunities and a maximum of $50 million of cash as an offset to debt. As of December 31, the combined entity had more than $200 million cash on hand. We are working to optimize our capital structure, and we'd like to share a number of relevant terms of our existing debt facilities. First, we announced several weeks ago that we were able to amend our credit facility to temporarily increase the maximum consolidated first lien net leverage ratio permitted by our covenants. This amendment provides headroom as we continue to focus on our integration of the two companies and realize the cost synergy opportunities. We also repaid $80 million of aggregate principal on the Term Loan B along with accrued and unpaid interest. This reduced our net leverage ratio by 0.2 times and aligns with our capital allocation policy to use cash generated from the divestiture of businesses for the repayment of debt to accelerate the path to deleverage. Going forward, our debt mix of Term Loan B and bonds provides us with payment flexibility, and we have additional capacity on our revolver. Under the new covenants, we are committed to returning to a net leverage of 4.5 times by the end of 2025. We are committed to derisking our capital structure, and we are already undertaking several initiatives to deleverage. As we have previously communicated, our policy is to run at a net leverage ratio of under 2 times, and we are committed to taking the necessary steps to adhere to that policy. These steps include a key focus on profitability of the combined entity and the realization of the cost synergies to generate cash from operations as well as an accelerated portfolio review to identify potential divestitures. As part of the Omni integration efforts, we are identifying ways to streamline our portfolio and accelerate the repayment of debt. In response to the recent acquisition of Omni, we are making adjustments to our capital allocation policy, and we'll prioritize the repayment of debt ahead of dividends, share repurchases and M&A activity. We will continue to reinvest into our operations through capital expenditures that positively affect productivity, automation and the replacement of vintage equipment to improve the operating efficiency of our LTL network. In line with our focus on reducing leverage, as we announced in our earnings release, we have made the decision to suspend our quarterly dividend beginning with the first quarter of 2024, which would typically have been paid in March. We will provide updates in connection with reinstating the quarterly dividend as we make progress with our capital structure and the achievement of our net leverage target. While we still await the audited financial statements for Omni for 2023, we wanted to provide context around trends we are seeing in Omni businesses. In line with observations for our own business, certain of Omni's businesses were impacted by the challenging market conditions in 2023 that led to decreased customer demand. In the first two months of 2024, we are beginning to see demand improvements in the domestic market, though it remains soft internationally. We are cautiously optimistic about improvements in the back half of the year.

Thanks, Rebecca. One of my top priorities is to ensure that we successfully integrate Omni and capitalize on the many opportunities that it will create for our customers, employees and shareholders. We are taking a thoughtful approach to executing our integration plan with a strong focus on combining our employees and services seamlessly and without disruption. As we move through integration, customer service and retention remain top priorities. We are committed to serving and honoring our commitments with our legacy customers, and we will continue to focus efforts on growing and winning business with them. There will now be three distinct commercial channels within the combined organization, wholesale, shipper asset and Omni services. Our commercial strategy is built to relieve our customers where and how they want to buy. Our wholesale customer channel includes our legacy Forward customers, including freight forwarders, airlines and 3PLs. We are committed to continuing to provide them with our premium LTL services to enable them to grow their businesses. Our shipper asset customer channel includes direct shippers that require an asset-based provider to increase their supply chain control. And lastly, our Omni services channel includes customers with supply chain goals based on unique curated end-to-end solutions. Of course, the quality of our service to customers in each of these channels will remain first rate. I cannot emphasize this enough. We are committed to taking care of all of our customers across these three channels. We are pleased with the customer response we've seen so far. Volumes from our wholesale customer channel remained strong. In the six months before and after the transaction was announced, Forward saw a decrease in volumes with our domestic forwarders of 8.9%, but we believe almost all of that decline is driven by a softer freight market rather than customer attrition. That view is supported by some of the negative volume developments of our LTL peers in Q4. Also, volumes with 50% of our legacy customers actually grew during the last six months. Earlier this month, at the Air Cargo conference held in Louisville, Forward was recognized by the Air Forwarders Association as the 2024 surface vendor of the year, an award reflecting how our great service has helped our legacy customers grow their businesses over the past year. However, we realize that we have to earn the business of all our customers every single day and we plan to do just that through our integration and beyond. Since closing the transaction last month, we have seen some early wins resulting from the acquisition. To date, we've captured $17 million of annualized new premium LTL business from Omni customers in the fulfillment and entertainment spaces. We are still in the early days of our integration work, but we believe that's a good start and that more wins will come. I'd like to now spend some time discussing the Omni integration and how we're positioning Forward for success in its next phase of growth. As one company, we are laser-focused on creating value for employees, customers and shareholders. We continue to believe in the industrial logic of the transaction and the significant and attractive synergy opportunities to be unlocked. As part of the integration process, we are revisiting those targets amidst the softer freight environment and identifying new pockets of synergies, which we will provide updates on in the future. This combination creates the category leader in expedited LTL market built on precision execution and provides customers with a less than truckload service that is the best in the industry for damage-free, intact on-time shipments. Among others, we see two major opportunities coming out of the transaction. First, doing business with Omni customers who have premium LTL needs. These customers need the kind of network we offer with a high level of service, low claims and visibility all in one place. We've already realized some of these opportunities. And second, we're well positioned to work with Omni's customers who have international operations with domestic network needs. Our team of operators and transportation professionals led by my colleague and 28-year Forward veteran, Chris Ruble, has our LTL network running at the same high level of performance as always. This makes Forward the most compelling choice for customers with high-value, mission-critical and time-sensitive freight needs, and we plan to focus on that portion of the market not using intermediaries. We believe that the size of that market will allow us to grow our direct shipper business while continuing to serve and assist our intermediary freight forwarder customers in growing their businesses. Also, as Rebecca has already noted, part of our integration plan involves a portfolio review to assess the fit of each of our businesses within the company's overall strategic plan. Our plan is to divest of any businesses that are determined not to fit and use the proceeds from those divestitures to accelerate our path to deleveraging. I would like to now acknowledge the great resources we have at the Board level for our integration work. It's been a pleasure to have Gil West leading our Board's recently formed integration committee, and I've been working closely with him, the committee and other senior leaders to ensure a smooth integration process. Gil is the former Senior Executive Vice President and Chief Operating Officer at Delta Airlines, and he's led the successful integration of numerous transformational transactions. Moving forward, we will provide a dashboard to track progress of the integration focused on synergy capture, and we're already seeing initial success. We have folded Omni's linehaul business into the Forward network, which has led to a year-over-year pounds per day increase of more than 20% in the first week post-closing. We look forward to providing an update on our progress in the coming months. In my time at Forward, I've seen that if you take care of your people, they will take care of your customers, which drives positive and sustainable results. In my role as interim CEO, I remain committed to bringing these two high-quality hard-working teams together, working closely with the Board, Rebecca, Chris Ruble, Nancy Ronny and our other senior leaders. I view my mandate during this transitional period as providing stable leadership that facilitates the integration of Omni, the execution of Forward's business plan and the continued development and enhancement of our customer relationships. As we charge ahead with creating value, our Board has formed a search committee and is working diligently to identify a new leader who will then be in a position to outline the next phase of strategy and financial targets. We look forward to providing an update on those efforts when appropriate. In closing, we are focused on smoothly integrating Omni and Forward while continuing to serve our customers with our usual level of excellence. The combined entity will be even better positioned to excel in the expedited LTL market. I'm confident the next phase of Forward's growth will be a successful one. And I'm determined to ensure that Forward successfully navigates this transition while delivering value to our shareholders, customers and teammates. With that, let's open up the lines for comments and questions.

Our first question comes from Scott Group with Wolfe Research. Please proceed.

I guess a lot to ask. Maybe I just want to start Rebecca. Can you just give us an update sort of pro forma where we are today from a cash standpoint, total debt. And then I think you said the leverage today is 5.2 times, but I may have heard that includes the full expectation for synergies. Is that right? And can you just sort of clarify how much we're assuming there.

Yes. After our $80 million debt repayment, our total debt outstanding is $1.17 billion. Since December, we have maintained over $200 million of cash on hand, which places our pro forma net debt at around $1.6 billion as of today. The leverage ratio stands at 5.2 times; we opted to disclose this figure. It's important to note that this is an estimate based on preliminary Omni 2023 results, and the audit is still in progress. Therefore, this number may change. We wanted to provide this figure to help people understand our leverage ratio. This calculation complies with our leverage covenant credit facility and includes a cash netting cap of $50 million, which means it does not account for the additional $150 million in cash we have. Additionally, it incorporates the full run rate of the cost synergies of $75 million. These are the two key adjustments you would see if you were to compare this to a standard net debt leverage ratio.

I understand the decision not to provide guidance at this time, but we still need to develop some models. Could you share the operating income or adjusted operating income for Omni in Q4, or at least provide as close to those numbers as possible? Additionally, as we consider modeling for Q1, do we expect the business to be profitable overall, or not? Any insights you could provide would be appreciated.

Yes. Scott, I think I'm going to let Michael address just one topic, so we give a little bit of level setting in terms of what our plan is in giving information about the combined entity. We certainly understand that there is a thirst for knowledge of the combined entity, and we've had a bit of an unorthodox closing. And so let me get Michael to first address one topic and then we'll tackle some of those.

Yes, Scott, thank you for the call and the question. We recognize that there is a strong demand for information, and we are eager to provide it. Our closing process has been somewhat unconventional, as Rebecca mentioned, which means we did not have the typical ramp-up period for developing information. We are a bit behind, but we are making good progress and catching up. While we are not prepared to share some of the information you are seeking today, we are committed to being transparent and will provide that information in the future. Our plan is to have an investor presentation available to facilitate this, although it will not be today. Consequently, we may not be able to answer all your questions right now.

Yes. So I think, Scott, we will defer on responding to those questions since the Omni results are not finalized as of today. We will certainly address those at the Investor Day when we have the information finalized and available, providing the transparency that you desire.

I have one last question. Can you help clarify how we should consider aspects like interest expense, depreciation, share count, Q1 figures, the annual outlook, and CapEx?

Our interest expense, when annualized, amounts to approximately $170 million. Regarding our debt, 40% is fixed while 60% is variable. Both Forward Air and Omni operate under an asset-light model, typically generating 1.5 to 2 times revenue. From a depreciation perspective, we expect it to remain consistent with what you've seen from Forward, and we have provided historical financials for Omni. Therefore, no significant changes in CapEx or depreciation are anticipated for the combined entity. We are currently focused on integrating our operations and determining the necessary equipment to efficiently service our customers and maintain our linehaul and PUD network. As of now, we do not foresee any major changes in this area.

Our next question comes from Bascome Majors with Susquehanna. Please go ahead.

Following up on some of those themes, just to clarify, the $170 million debt service, is that a cash expectation for 2024 at current interest rates?

Yes. Bascome, just to clarify, that is just interest expense. There will be another incremental $11 million to get to the total debt service. So $181 million would be your total cash out the door.

So $11 million amortization or payment of principal on top of $170 million interest.

Exactly.

To approach this from a different perspective, you recently closed about a month ago and have mentioned the unusual closing process that led to this point. Do you believe that the unlevered cash flow from the combined business will be adequate to cover the debt service? Or are we at a stage where we need to reduce debt or experience some cyclical improvement in the near term to manage this situation?

Sure. For February, the combined entity produced more cash than the monthly debt service requirement. After covering our debt service for that month, we are cash flow positive as a combined entity. This does not account for any synergies from our integration process, so while February's performance isn't fully indicative of the entire year, it demonstrates that together we can manage our debt based on February's results.

That's encouraging news. And just to dig further on that, you said that does not include synergies in that calculation, are you adding back some of the onetime charges, such as, I don't know, severance for common JJ and professional fees and close-related transactions? Or is that a fully loaded debt service comment?

Yes, there were only a few minimal costs in February, so we did not encounter any significant items like we did in the fourth quarter. The one-time items were not as substantial as those seen in Q4. Most of the transaction costs related to closing that we incurred in Q4 were already paid at that time, which means we did not have many lingering costs to address in February.

And before I pass it on, anything else you would want us to hear on the concern around the cash generating power of the business versus the debt service? Just anything to help your shareholders get more comfortable that fingers crossed what you saw in February can continue?

Yes, Bascome. I want to highlight two points. Both companies faced challenging conditions in 2023. As we mentioned, we experienced some positive trends in our business with LTL volumes in February, and Omni also saw improvements in their domestic operations. However, both companies are still facing some difficulties. On the international side, especially with Truckload and intermodal services, it's largely driven by market conditions, but we recognize the synergies and cost efficiencies that the combined entity can leverage. The fact that we had positive cash flow in February, considering the current environment, should indicate that more positive developments are ahead in terms of cash generation. Looking back at 2022, both entities posted positive cash flow, and we've published Omni's audited financial statements, which reflect this. The Omni business successfully generated cash in 2022, and our combined entity also did so in February. The potential for cash generation exists. It all comes down to integration and realizing those cost synergies to enhance our earnings power and restore free cash flow to the usual levels seen for Forward Air, while also incorporating contributions from Omni.

I agree with Rebecca and Bascome. I want to emphasize our strong commitment to integration and achieving those synergies. We are actively engaged in the work and we are optimistic about the results we are seeing. We will be happy to provide you with more updates on our progress in the future.

Our next question comes from Tyler Brown with Raymond James. Please go ahead.

I realize there's obviously a lot going on, and I may have missed it, but you guys said in the release that the quarter was in line with expectations, but when or where did you update those expectations to $0.78 to $0.80? I mean I get that maybe that's what was implied in the guidance extra Final Mile, but did you guys communicate that?

Yes, Tyler, we did not change our consolidated guidance. It remains at an EPS range of $0.98 to $1.02, with a revenue decline of 7% to 17%. At the time we provided this guidance, we had not advanced far enough in the sale of Final Mile to the Hub Group to break out our guidance between discontinued operations, which is our Final Mile business, and continuing operations, which includes everything else. We wanted to clarify this because we were reporting results from both discontinued and continuing operations. When we forecast, we build it up by each line of business, allowing us to determine how much is allocated to Final Mile versus LTL, truckload, and intermodal. Therefore, we broke out the Final Mile for better clarity. While we did not publicly specify the exact amounts for continuing versus discontinued, we can share that the EPS range for discontinued Final Mile was $0.20 to $0.22, and for continuing operations, it was $0.78 to $0.80.

So it sounds like you're not giving what Omni's EBITDA was in '23, but then again, kind of all. So if you say that your pro forma on, call it, $1.8 billion of net debt, that's like $350 million of implied EBITDA. You say in your press release that you do $200 million of legacy forward on a continuing basis. So that's like $150 million less. And if I take out the $75 million for cost synergies, I mean, did Omni do like $75 million in 2023? Or is my math correct?

Tyler, thank you for your question. I want to reiterate that the audit for Omni is still in progress and will not conclude until March 15. I understand the need for that information, but we aren't prepared to provide it today. However, we plan to share it soon during an upcoming investor presentation. Unfortunately, that means we can't address it at this time.

What about the $1 billion of preferreds? Did they convert? And if not, are those dividends accruing? And what happens if they don't convert?

That's a good question, Tyler. The preferreds are currently just that—preferred. The dividend on those preferred shares is not due until the one-year anniversary after we finalized the transaction, which will be in January 2025. They do not accrue prior to that anniversary. So essentially, we have one year from today until January 25 next year to convert those from preferred to common. If they aren't converted, there is a pick option along with a cash component. However, the company aims to convert them before the one-year anniversary to avoid paying the dividend on the preferred shares.

And then just from a reporting perspective, Rebecca, how do you anticipate reporting going forward? Will there be expedited freight, intermodal and then Omni? Or are you going to try to fold Omni into expedite? Or how is that going to work?

Yes. It's a good question, Tyler. And certainly, we've been thinking and having those conversations over the last several weeks with the sale of Final Mile, that was part of our expedited freight and then also looking at the Omni businesses. Omni does have some similar businesses to Forward. As an example, they have their own truckload brokerage, we have ours. And so I think we're in the process of evaluating what that looks like and what's the best way to report together. And from a segment reporting standpoint. So I hate to say that we don't necessarily have that answer today, but we are certainly working on that answer. And as we come to our Q1 results at that point, we will have our reportable segments done and settled and be able to report those.

Our next question comes from Stephanie Moore with Jefferies. Please go ahead.

This is Joe Hafling on for Stephanie. I appreciate all of the color that you guys have given so far. I kind of wanted to drill in a little bit, I guess, maybe on the synergies. As we're thinking about that $75 million synergy number, correct me if I'm wrong, I believe that $60 million in the first year and the remainder being realized over the longer term. Could you kind of help us get some confidence in terms of you mentioned folding up some of the Omni line haul. Could you give us maybe a little bit of anything to give us some confidence on what the cost basis of that is? How many terminals, does that include what's the sort of cost per terminal savings or line haul savings that's kind of been realized with that roll up so far?

Thank you for the question, Joe. I’d like to provide a broader perspective on integration. We see it in phases. Phase 1 focuses on maintaining continuity for our customers and employees while executing the prewired synergies, such as integrating the Omni line haul network. We're not ready to quantify that yet. As mentioned earlier, we're revalidating those synergies and searching for new ones. We plan to report on this in the future, but we don’t have that information today. I can tell you that in the first week after closing, we observed a 20% increase due to the consolidation, which our team executed very well. Additionally, we have sufficient capacity in our network for more business and freight, which is a positive sign. In Phase 2, we will identify and capture further synergies while addressing the core functions, such as merging our financial processes and cybersecurity protocols. The final phase will involve optimizing the combination of both companies. I understand this is a high-level overview, and we will return to provide a scorecard for better visibility, but we don't have that information at the moment.

I would like to clarify that the 20% increase in tonnage is a result of business that was previously utilizing Omni's line haul now shifting to our network. This does not represent new consolidated business, but rather is now part of the Forward operations. Additionally, you mentioned $17 million related to revenue synergies from Omni customers who require expedited LTL services that we can offer. Is that figure an annualized revenue synergy number, or does it refer to profit EBITDA?

That's annualized revenue. I believe you're right about that.

Yes, that is correct. The 20% represents what they would have previously used with a different carrier now coming through our network. From a consolidated perspective, you are right; that's just an intercompany transfer. We benefit from that cost synergy, and that's the most important takeaway from this.

Could you provide some insights on potential divestments? What characteristics would you consider when identifying non-core aspects that are not contributing to LTL? This will help us understand what to focus on.

Yes, I can address that. We are being very deliberate in our approach, which is an essential part of our overall integration efforts. Now that the transaction is completed, the combined company has new capabilities, and we are focused on maximizing those capabilities effectively. We are setting criteria as we progress to ensure we integrate everything optimally and take full advantage of our opportunities, especially in the LTL area. Currently, we don’t have additional details to share about our thoughts on divesting, but I can assure you that we are proceeding thoughtfully and carefully. We are excited about the new capabilities we possess, and before considering any divestments, our priority is to ensure that we fully leverage them for the overall strategy of the combined company.

And so I have one more clarification, Rebecca, maybe you could help me with. Could you just quickly provide us with the updated terms for the credit agreement, I believe, and correct me if I'm wrong, I believe you increased the leverage from a short time to 7x. I guess could you I guess, correct me on that. And then maybe what's the timeline of how long that temporary increase in the leverage ratio under the covenants goes for?

Sure. Yes. And just to clarify on these covenants, we did take the prudent approach. We thought about negotiating these covenants, we wanted to provide enough headroom for us, especially as we were going through this critical time of integration efforts. We just wanted to make sure that we have that availability, I guess, to continue to focus on the integration efforts and also still be in compliance with those covenants. So it is a springing covenant. It starts in Q2 of '24. It starts at 6x. It stays at 6 times for two quarters, and then it begins to ratchet itself down such that by the time you get down to the end of 2025, we are at the 4.5x, and that has been the maintenance covenant from that point forward. So we started high and ratcheted down pretty quickly, if you will. But that is all in the effort of being able to really kind of focus on integration efforts, give us that headroom, allow us to do the good work that we need to do.

Our next question comes from Christopher Kuhn with The Benchmark Company. Please proceed.

Does the 5.2 times leverage include the cost synergies you outlined when you first announced the acquisition? You mentioned revisiting targets earlier; what specific targets are you referring to? Will they encompass both cost and revenue synergy targets?

Yes, Chris, it only includes cost synergies. And you are right. It is based on the original cost synergies that we had disclosed. So that is correct. It's just that $75 million that we previously discussed back in August of last year. There's no revenue synergies that are baked in there. That would be goodness that we would see in our results that come through from an EBITDA standpoint, but it's not an incremental add from a covenant standpoint.

In the release, you mentioned the integration of the line haul. Can that be accomplished quickly in order to achieve the $60 million in cost savings you outlined a couple of months ago when the merger was announced?

Yes, I can confirm that we have successfully integrated the Omni linehaul network into the Forward network. We are pleased to share that this process has been completed and realized.

Just one last question. You mentioned during the call about retention, but what is your confidence in retaining your current Forward customers now that you have integrated Omni into your organization? How do you plan to differentiate the two and continue to grow those valuable legacy customers?

Yes, that's a great question and I'm happy to address it. First, let me emphasize that we work hard every day to earn our customers' business. They make choices daily, and I've had some excellent conversations with several of our customers in recent weeks. As mentioned earlier in the call, we've observed strong retention rates following the closing. We are committed to managing our engagement strategies effectively to reassure our legacy customers that we will continue to be the provider they trust without any unwarranted encroachment into their space. Our team is dedicated to earning their business, and Nancy does an excellent job of maintaining open and transparent communication with our customers. We believe there is ample opportunity in the market for us to keep providing the exceptional service they have come to expect while also expanding our business in other areas. That sums up our approach.

Our next question comes from Bruce Chan with Stifel.

This is Matt Milask on behalf of Bruce. Regarding Omni's performance in the quarter, considering the limited disclosure available at this time, could you provide some general insights on whether the results were better or worse sequentially compared to what was previously reported for that business?

Yes, I want to emphasize that we are looking forward to our analyst day and annual presentation where we will share more information once we have finalized the quarterly results. We prefer not to share details that could potentially change. As you know, Omni is a private company and doesn't follow the same reporting standards as our public entity. Their audit will be completed in their own timeframe, so we look forward to discussing this further once their audit is finalized.

And piggybacking off the last question, could you maybe shed any more color on why it was ultimately necessary to amend the credit agreement so soon after the deal closed and really how the new target of 6x was ultimately selected?

Yes, I'm happy to provide that information. When we established the covenant back in August of last year, the market conditions and information available were different. As we progressed through the closing process early this year, we realized the need to reassess and provide ourselves with more headroom considering the integration efforts underway. It was a prudent decision on our part to raise the covenant to 6x, ensuring we could concentrate on value creation through integration and synergy capture. This adjustment was influenced by new information that came to light between the negotiation in August and the start of this year.

That will conclude our question-and-answer session. I will now turn the call back to Michael Hance for any additional or closing remarks.

Thank you very much. We appreciate everyone who joined the call today and the questions that were raised. As Rebecca and I mentioned, we look forward to providing updates on the information that was requested and that you are interested in, and we intend to do so. As we stated earlier, we are committed to transparency, and we thank you for your patience as we progress. Lastly, I want to acknowledge our Forward teammates who are listening in on the call today. Thank you for your excellent work today and every day. We've been pleased to discover that we share a strong commitment to exceptional customer care and providing a high level of service. The individuals doing this crucial work are the ones in the field. I would be remiss not to express my gratitude as we wrap up, as this dedication is fundamental to our success going forward. With that, I think that's all. Thank you.

This concludes Forward Air's fourth quarter and full-year 2023 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.