Forward Air Corporation

Thank you for joining Forward Air Corporation's second quarter 2020 earnings release conference call. 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 sections of Forward Air's website at www.forwardaircorps.com. With us this morning are CEO Tom Schmidt and CFO Mike Morris. By now, you should have received the press release announcing our second quarter 2020 results, which was furnished to the SEC on Form 8K and on the wire yesterday after the market closed. Please be aware that during this conference call, we will be making forward-looking statements within the means of the Private Securities Litigation Reform Act of 1995, including statements, among others, about the effects of our business efforts and response to the COVID-19. including the impacts on each of our businesses the future plans for our pool business steps to bolster our liquidity steps to expand our operations organically and inorganically the company's outlook for the third quarter and fiscal year of 2020 including expectations for revenues tonnage and free cash flows the expected impact of growth and strategic initiatives and those other forward-looking statements identified in the presentation These statements are based on current information and our current expectations. As such, they are subject to risks and other factors that may cause actual operations and results to differ materially from the results discussed in the 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. The company undertakes no obligation Obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. And now I'll turn the call over to Tom Schmidt, CEO of Forward Air.

Thank you, Greg, and good morning to all of you on the call. Our last call was less than three months ago, and it feels like an eternity. Some things are the same. In fact, they are steadfast. The first and foremost is our commitment to our people's safety and the safety of all those around us at CDC Plus levels. And the second thing that's steadfast and firm is our execution of our Beyond 2019 strategy, the same strategy that we unveiled last year in June in New York. Precision execution for when it matters and it's bigger than a box, think forward. Two rock star segments, expedited freight and intermodal drage. and profitable organic and inorganic growth with a medium-term double-double destination. Other things, our forward tough team, and that's a term that one of our teammates coined, advanced a lot since our call in May, and I mean a lot. Mike and I discussed in our call at the time how we flexed down costs very quickly, how we raised liquidity, and how we made smart adjustments. We've gotten closer to customers in the last few months than ever. In fact, I personally have talked to more customers in the last few months than I did in any three-month period in my history of doing business. And thank God we put an organic growth-focused, grow-forward program in place 15 months ago. Finding, keeping, expanding good volume at high-velocity airlines, cruise lines, trade shows, conferences, concerts, temporarily suppressed, We had to dial up other levers, and we did very, very quickly. In fact, we turned our Grow Forward program the last several months into a Grow Forward Intense program. Talking about essential, we dialed up with our levers, specifically those SIC codes that are essential goods into our sales professionals' call cycles, resulting in significantly more business in those phases from healthcare providers to actually even landing a major supermarket chain as a new customer. Resulting in a June of 2020, as you saw, that for continued operations came in comparably in June of 2019, getting towards what we call a zero plus, meaning at least as good as last year and better. And remember, in April, just two and a half months ago, three months ago, our LTL tonnage actually had gone down by 26%. And some of that business that went out was our highest margin, high precision, high velocity business. Our incoming CCO, Chief Commercial Officer, Scott Schara, he's got a track record of building high-growth sales teams very, very surgically, making sure that he focuses and we focus on those parts of the vast LTL industry of 40 billion in the U.S. that are for our type of LTL. And quantifying how high is up for that essential business is one of our top priorities to start to be part of the leadership team making this happen. On the other deeply depressed business over the last several months, pool, scheduled deliveries to retail stores. I can only say over the last few weeks, amazing job how we helped with a tremendous team, our customers back up. Making this business all it can be. I personally went shopping to many stores over the last few weeks and months and saw safe, bright experiences. And frankly, I've got a few good deals. First class companies that are doing a great job. And I personally pick up the phone and let those companies know how tremendously effective they are in bringing their business back up. We are investing in our pool business. IT, we brought back a senior operations leader, Robert Norris. We are diversifying beyond retail, looking into home delivery. We want to make sure we graduate this business at the top of its class to a new owner who will make a healthy business even better. Frankly, it's our fiduciary responsibility to make this business all it can be. It's all the fun to really create a first-class business, the best in its class. And then finally, back to continuing operations looking forward The momentum that we started building in June continues in July, giving us a further spring in our step and making us even more confident that the investments we're making into our LTL business are the right ones to make. You probably saw our investment announcement in Savannah where we actually very creatively are expanding our LTL footprint outside major airports and we're doing it on the back of our final mile presence. You always talked about that the reason why expedited freight segments exists, why LTL and Final Mile locally and truckload and LTL over the road collaborate. Savannah is a great example of that and there's more Savannahs to come, more network terminal expansions to come this year. You also saw earlier this week our investment announcement Columbus Hub, our biggest hub already. It's in the center of the economic activity of the country. and we're investing into a significant expansion, 35 more doors, 30 plus million dollar investment over the next several years. It's our commitment to our belief that we will be getting more sweet spot LTL business in a huge addressable market that's actually growing. FireMile is clicking already, you saw it in the numbers. Intermodal continues to be strong, tremendous cost management and Truckload is becoming a strong partner for our LTL business from Recruiting to Selling to Capacity Management. Our sales teams led by Lance Small, Mike Pardato, Dennis Light, Angela Timmons are doing a tremendous, phenomenal job. And Scott Sharer, when he comes in, will just add to that. The key focus for us will be to capture that right fit transportation, that $40 billion LTL industry. We make sure we find the sweet spot and we also operationally create synergies like truckload and LTL over the road, as I mentioned, or final mile LTL locally. The very last point I want to make is I'm going to talk about our inorganic growth, our commitment to M&A, our proven M&A model. We had three acquisitions last year and I expect 2020 not to be a pause here. I expect more. In closing to our customers, I could not be more proud of our team We do not wait. When we see something, they may react with empowered teams, and we remove ceilings. We remove ceilings by industry. I talked about more essential and quantifying how high it's up there. We also remove ceilings when it comes to geographies. Savannah is a great example as an expansion. So with a clear eye to our medium-term milestones, I'm going to hand over to Mike, our CFO. Thanks, Tom.

I would like to provide an update on our liquidity planning for the rest of the year. At the onset of COVID-19, we greatly increased our cash balance and secured a 50% increase to our credit line. We felt that enhancing our financial flexibility was prudent in light of the uncertainty created by this global pandemic. During the second quarter, we actively managed our asset light business model and remained free cash flow positive on a continuing operations and on a consolidated basis. We weather the depths of this perfect storm while making key investments to emerge a stronger competitor. We believe the worst is behind us and we expect to remain free cash flow positive on a continuing operations and on a consolidated basis each quarter for the balance of this year. As such, we plan to relax our excess cash and debt positions During the second half of 2020. By the end of the year, we expect to reduce our leverage ratio from its current level of 1.1 times to 0.8 times EBITDA. We will also resume quarterly share repurchases at a level consistent with our historic activity. And of course, we remain committed to our dividend. If trouble resurfaces, we believe we have ample liquidity to support our operations. Our increased credit line is committed, and we expect to remain in compliance with its covenants. Before we go to Q&A, let me provide an outlook for Poole since we are only guiding to continuing operations. As physical retail continues to recover, We expect pool will show sequential improvements in revenue and operating margin. And by September at the latest, we expect the pool will generate a small operating profit. With that, Greg, let's open the line for Q&A.