Forward Air Corporation

Thank you for joining Forward Air Corporation's third quarter 2021 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 section of Forward Air's website at www.forwardaircorp.com. With us this morning, our CEO, Tom Schmidt, and CFO Rebecca Garbrick, by now you should have received the press release announcing our third quarter 2021 results, which was furnished to the SEC on Form 8K and on the wire yesterday after the market closed. 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 in other matters that are not historical facts. Forward-looking statements can be identified by the use of words such as anticipate, intend, believe, estimate, plan, seek, project, expect, may, will, would, could, or should, and the negative of these terms are other comparable terminology. This conference call and the company's earnings press release contain forward-looking statements which include but are not limited to statements related to future operations and results. any statements of plans, strategies, and objectives of management for future operations, and any statements about future financial or operational targets. 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 related to this earnings call. The company undertakes no 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, David. And also, and most importantly, a big thank you to all of my Forward Air teammates and our independent contractors who made our record third quarter possible. A record quarter that actually culminated in a record month for our company, the month of September. Let me just take a moment to go inside our businesses for the quarter and give a little bit of a sense. Intermodal, one of our two segments, had a very, very consistent three-month period, producing the expected what we call double-double, a double-digit margin and a double-digit growth rate. They are very consistently producing those types of numbers, and I'm very proud of our team there. Then when we go into our other segment, expedited freight, two of the three lines of business, final mile and truckload, also were very consistent throughout the three-month period. Now, the third business inside Expedited Freight, our LTL business, was a different story in a very good way. We executed a transition throughout that quarter. And I mentioned on our last earnings call in July what that transition would be about. We are working and we did work very closely with our LTL customers eliminating inefficient freight. Inefficient meaning loose, oversized, non-palletized freight. from our system to ensure one thing and one thing only, that our network is unclogged and delivers the speedy, no-damage, on-time service our customers expect. July and August inside that quarter were a bit of a handoff of the baton, from that inefficient freight which we dialed down and out to dialing up more dense, high-value freight. That baton handoff was superb. It also, frankly, caused us coming in on the revenue side slightly below guidance. Now, in September, the whole thing came beautifully together. Inefficient freight gone, denser high-value freight dialed up, resulting in a September 2021 over a September 2020 in our LTL line of business where the rate per shipment was up by about 30%. Our revenue per shipment year over year September was up by about 50%. And an LTL operating margin for that line of business for the month of September of 17.5%. We're getting there. So let me put where we are with the third quarter and with September into context. Let's go back a couple of years. On Investor Day in New York 2019, we announced a double-double in the medium term. we were prepared to go for a double digit margin company and a double digit revenue growth on an ongoing basis. We had a grow forward program to go after more high value freight. Now then that's when luck means preparedness meets opportunity. We were actually prepared to dial up higher value freight. We didn't know that last year the opportunity that actually came ringing was called COVID. Now all we did with all the events business temporarily gone, we used our Grow Forward program to dial up high-value freight faster, just doing good things faster. So again, luck is when preparedness meets opportunity. We were prepared. We just didn't know what opportunity would cause us to run even faster. So we dialed up high-value dense freight at record speed. And that resulted in a first set of double-double months in April and June of this year. So less than two years after our double-double announcement in New York. It resulted in a full quarter double-double in the second quarter of this year. Again, a double-double in this quarter, which is talking about your Q3. And then obviously having dialed up our high value freight at record speed, allowed us to go ahead with that exact cleansing that we just talked about of our lower value inefficient freight out and higher value freight in. That got us to our record quarter and to the September that we just briefly discussed. So where do we go from here? October continues to be very, very strong. In fact, again, for the LTL line of business, the first two weeks of October were the highest and the third highest tonnage week in the history of our company, with revenue about 35% over the same two weeks last year. We expect that strength to continue, putting us into a position for another record quarter. We expect Q4 to come in at an adjusted EPS of $1.27 for a full year EPS of $4.32. We also expect, looking forward to next year, 2020, we won't do just double-double months or double-double quarters. 2020 clearly will be a double-double year for our company. That takes us one year further out to 2023. To give you a sense there, we are targeting revenue for 2023 between $2 billion and $2.6 billion. And EPS between $6.30 and $6.70. That's comparing to the $4.32 that we expect for this year. Now let me talk briefly about that revenue range from 2 to 2.6 that I just talked about. The high end of that range will be achieved only if we step up significantly with more focus on brokerage, making sure we have controlled Access to high quality outside mouse when we have to flex up in support of our customers The lower end of that range is when we keep growing Organically the way we have the small talking acquisitions the way we have But it's still going to be significant organic growth on the LTL side for instance including a handful or so of terminals that we're going to roll out next year and secondary terminals that are of significant size in primary markets. So organic growth will happen. That's getting us to the lower end of that range. If we do more aggressive M&A, specifically also enhancing brokerage organically or inorganically to secure the access to our driver pool that we need to support our growth, that's what would get us to the higher end of that revenue range. we still feel very, very comfortable with a range of EPS between 630 and 670 for 2023. So stepping back, before I turn it over back to David, if you think of the last two earnings calls in April, we talked about hitting the stride. In July, we talked about running. I can say today we're actually at a point where it's stretch time. So with that, David, I'll give it back to you and you can open up the lines for Q&A. Thank you.

The floor is now open for questions and comments. If you wish to ask a question, please press 1 then 0 on your phone. Pressing 1 then 0 will indicate that you wish to ask a question. One moment for our first question. Our first question will come from the line of Todd Fowler with KeyBank Capital Markets. Please go ahead.