Forward Air (FWRD)

Long time lurker first time poster yada yada. I'm here to talk about FWRD, a company I've been trading for the last few years and just bought shares / calls in. **Background:** Legacy Forward Air is an LTL (less-than truckload) carrier that has historically owned the airport-to-airport trucking market with \~7% share of the "expedited" LTL market. Their customers are freight forwarders (i.e. moving cargo from Asia to the US) who pay FWRD to move the freight from airport to DCs before ultimately moving to its end destination. Prior to 2023, FWRD consistently had best in class margins / operating metrics and traded at the high-end range of EBITDA multiples vs LTL comps (in the \~low teens LTM EBITDA range, in-line with #1 player ODFL and well ahead of the other comps in the \~10x range). **Management Goes Full Regard:** in August 2023, FWRD announced that they were purchasing a freight forwarder called Omni for \~2.8bn (\~18x LTM EBITDA). In addition to paying a huge multiple for a business that was clearly coming off of peak earnings (as shipping demand spiked during covid), the market was dumfounded by FWRD purchasing a customer and the potential dis-synergies that come with pissing off Omni's competitors / FWRD's other customers. Over the course of the week the deal was announced, the equity fell \~45% from \~$120/shr to \~$65. Don't ever go full regard. Over the next several quarters, the freight environment continued to deteriorate from covid highs and Omni EBITDA went negative in 1Q24 on a mix of macro / poor integration (LTM EBITDA of \~$38m vs a peak of \~$260m in FY22 and \~$185m at the time of acquisition), though management was adamant they had not lost any customers as a result of the acquisition. The market said you are stupid & lying and shares troughed at \~$12 shortly after Lib Day. **Omni Stabilizes, Legacy FWRD Shits Itself:** In the two years since turning negative, Omni has been integrated and returned to growth similar to others in the industry with FY25 EBITDA of \~$125m. However, the legacy FWRD business (which was once viewed as a best-in-class business) started performing poorly and took a sharp dip in 4Q24. But don't worry. The *really really terrible, no good* performance was because of the *prior management team's* focus on growing volume at the expense of price. And those guys got fired. Nothing to see here folks. As we moved into FY25, legacy FWRD has remained stable (albeit at a depressed level). The new management team (who had successfully executed a turn-around at CEVA logistics before taking on FWRD) has done a good job of re-pricing contracts and executing cost saves. **The Opportunity:** The equity has been volatile, moving up from the lows of $12 to $30+ last year; largely driven by the company announcing a strategic review to sell part / all of the company. After reports that the sale process had ended with no buyer, shares fell back to the teens in November. I bought calls here and management said on the Q3 earnings call that talks for a sale were very much in progress, which drove shares back to \~$30. Here we find ourselves with another bite at the apple, as Iran / another report that the sale failed (from the ever prestigious "investing.com") drove shares into the teens (\~$18 today). I believe current trading levels make this a ***very*** attractive take-private candidate with the company trading at \~8x LTM EBITDA despite the Omni public comp (EXPD) trading at \~17x & private comps in the 15x+ range / public LTL comps also trading in the high-teens. This is a turn-around story that is better handled in private markets and someone will be willing to take that chance (for reference, Clearlake / LIttlejohn own a combined 20% of shares). A 10x take-out for the total business would imply \~$31/shr. Value could be unlocked via a full sale, a sale of just the Omni business at market multiples, or if management can prove they have righted the ship. Even if there is no immediate update on the sale process, I expect Q1 to be up yoy as Omni continues to perform well & global uncertainty increases (which makes customers more reliant on freight forwarders) / legacy FWRD stabilizes, with upside from any improvement in the freight macro over the next few months. **Positions:** 2,000x shares 200x 9/18/26 20C **TL;DR:** Oversold stock bc management was insanely dumb. Opportunity for stock go up on a take-private & or re-rate of multiple back to industry comps. PT: $30+.