Andrew Cox: It’s Andrew again. I just wanted to address attrition, both on the customer side and on the Omni’s sales force side. Last quarter, you said you guys weren’t seeing any material customer attrition. I just wanted to know if anything has changed there. And then also, what’s the attrition been like at Omni sales force and what’s the plan to integrate the team? And then as a follow-up, Shawn, what are some of the things that you can bring and what you can do to defend against both customer attrition and attrition of the Omni sales force?
Michael Hance: Andrew, happy to answer. This is Michael. I’ll start and then pass it to Shawn. I’m pleased to report that the answers on customer attrition and salespeople attrition is still positive. I mean I’ve had many interactions with our customers over the past several months. And as Shawn said on the call in his opening remarks, they’re looking for us to continue to provide them with the same great service that enables them to win, and we are committed to doing that and have continued to do that. And so we have not seen customer attrition. And with respect to the sales team, we have a great sales team, and they are laser-focused on winning in this tough environment, and we’re grateful for that. And there are, as part of one of our integration work streams is sort of working on how to integrate from a commercial side and sales side, and that’s fully engaged and ongoing.
And I think with Shawn now at the helm, he’ll be speaking into that and directing it and steering it. And you’ll hear more about that in days ahead, but Shawn, I’ll pass the mic to you on that.
Shawn Stewart: Yes. So thank you for the question, Andrew. Look, in full transparency, if you’re not growing your debt in this business and I’d like to spend a large majority of my time personally involved with customers. So obviously, I’ve got a lot of work to do ahead of me with the team to get the most optimal out of this venture quickly. But I will segment my time over this next quarter to split those time capsules, if you will, between direct interaction with customers, with the sales team to ensure that we continue to give that confidence and listening to understanding what solutions we can bring to their supply chain throughout this combined network.
Michael Hance: And Andrew, if I could just jump back in. I’m not doing justice because I’ve had the great pleasure of sitting with our sales leaders and working with them closely over the past several months. And I just can’t tell you how impressed I am with them and how dedicated they are to be delivering that great service to our customers. I’ve been in so many meetings where they get kudos from the customer because our people are just so committed. So I think that is a great asset for us and something that, as Shawn said in his remarks, our great people are the foundation for which we’re going to build on. And so I just want to call that out specifically and say thank you again to those folks who are listening on the call.
Operator: We will take our next question from Tyler Brown with Raymond James.
Patrick Brown: So — just so I have it on the EBITDA calculation for the debt covenant. Is it basically you just take the last four quarters of pro forma EBITDA and then they add kind of the run rate synergies. Is that effectively correct?
Rebecca Garbrick: Yes, Tyler. On our debt, we did give — in the appendix, we gave a reconciliation for the trailing 12 months. But you’re right in terms of just the pro formas of the last four quarters and then there’s adjustments that we add back, the largest of which would be our due diligence transaction and integration costs. But then you’re right on the run rate of the cost synergies. So that’s right. It is — the $75 million obviously adjusted for any that we realized within our own P&L or wins that we’ve achieved. But in implicit terms, that’s correct.
Patrick Brown: Okay. So if I come back to Scott’s question at even kind of another different way, but what was the bank applicable pro forma EBITDA in the second half of ’23? Do you have that by chance maybe for Q3 and Q4 because it’s very hard to do the calculation?
Rebecca Garbrick: Yes. We just provided the — the bank’s calculation is on a trailing 12 months. And so we wanted to be transparent in terms of what that looked like. And so we provided the trailing 12 months versus breaking it out between the quarters to get there.
Patrick Brown: Okay. Well, obviously, cash flow is going to be super important here. And based on the comments, again, because I think on the last quarter call, you said that February was cash flow positive, which implies that March was a big burn. I mean, can you commit to having positive operating cash flow in Q2? Or you’re just not ready to do that?
Rebecca Garbrick: Yes. I don’t think we are ready to speak to really Q2. But Tyler, I can assure you that this is a — as you said, this is a top priority for the Company. We are very focused on liquidity. We’re very focused on deleveraging. We will acknowledge that there are some onetime only cost in the second quarter as we have some lingering expenses to be paid from this acquisition. But once you get to the second half of the year, it’s more in a normalized environment. We also believe that these synergies that we’ve talked about, we’ve already proven that $7.5 million in our P&L for the first quarter, and we believe that there is more yet to come in the second quarter and in the second half of the year. So — also, as we talked about on the cost reduction, we have some programs that are underway as we speak.
We’ll give you more clarity of those on our second quarter earnings call. But all the actions that we are taking sets us up to be able to be cash flow positive, as you have asked in your question, and that’s what our focus is, and that’s what we’re working to be able to provide you on our second quarter earnings call. But hopefully, that could give some context about how we’re viewing liquidity and the actions that we’re taking.
Patrick Brown: Okay. A couple more. So I think on the cash flow statement, you also paid out a $12 million earn-out. What was that for?
Rebecca Garbrick: Yes, that’s right. It’s down in the financing section. There was a legacy Omni acquisition where we were — an earnout was earned and due and payable. It was split between Q1 and Q2. So the $12 million that you see down in the financing, that’s one piece of it. There’ll be a second piece in the second quarter.
Patrick Brown: Okay. Equal size.
Rebecca Garbrick: No, it’s a smaller. A larger portion was paid in the first quarter. It’s a smaller portion in the second quarter.
Patrick Brown: Okay. And my last one, so on the leverage ratio calculation, I thought that the cash cap was, say, $50 million. It seems like you were able to add back $155 million in the [calc] this quarter. Am I just misunderstanding how the calculation is done?
Rebecca Garbrick: No. Tyler, after a further review, we are able to add back unrestricted cash, which essentially is our domestic cash. And so that is correct. That’s why the $155 million is a tieback to our balance sheet because we were able to take a larger portion of that as long as it’s not restricted cash to deduct. It’s netting against the debt.
Operator: And next, we’ll take another question from Bascome Majors with Susquehanna.
Bascome Majors: Just to go back to Tyler and Scott’s angle, as we look at the trailing 4Q lender EBITDA, you’re going to lose the second quarter of last year, which will obviously be challenging even with sequential improvement versus the first quarter of this year. Is there any way to frame the lender number of EBITDA on an adjusted basis for the second quarter last year, just so we can think about the risk of losing that going forward?
Rebecca Garbrick: Yes. I think, Bascome, again, we — you’re right that we will drop off as we move into the second quarter. You’re right, we will drop off one quarter. I think it’s — as we’ve kind of started the call, I’ll kind of go back to what we had, Shawn and I, both have said is that we just don’t believe that the first quarter is really representative for the remainder of the year. And so while we do — we will drop off that quarter, as you mentioned, I think as we think ahead to second quarter, I think it’s a misnomer to believe that Q1 will be reflective of Q2 results. And we have actions that are underway in terms of all the things that we’ve talked about. And so with that, we do believe that we’ll be in compliance. And so even with dropping off of last quarter and picking up our second quarter results.
Bascome Majors: Okay. And, Shawn, maybe from you, I know you’ve been here days, not months, quarters or years, but you spent a career at a business that was acquired and then owned by highly leveraged state for a long time. Can you talk a little bit about sort of the — kind of leverage crisis-type experience that you learned from that? And how that skill set of both running a business while managing a challenging debt load and cash flow situation has led you to this opportunity here at Forward Air? And what you’ve learned from that, that will enable you to create value for equity holders here over the next few years?
Shawn Stewart: Sure. I appreciate the question. I would say, just maybe a high level, what I learned is that you don’t win the game playing defense and you don’t win the game just play an offense. It’s how you play both of them at the same time, to bring a situation that’s not so good into something that’s really positive. And so my approach to this opportunity of being here is that we are completely focused on both of those at the same time, and that will take us to the optimal situation that we need to be in at the quickest rate.
Operator: And that will end our Q&A session, and this will conclude today’s Forward Air First Quarter 2024 Earnings Conference Call. Please disconnect your lines at this time and have a wonderful day.
