Forward Air Corporation

Thank you for joining Forward Air Corporation's first quarter 2022 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 are CEO Tom Schmidt and CFO Rebecca Garbrick. By now, you should have received the press release announcing our first quarter 2022 results, which was furnished to the SEC on Forum 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 security's 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. 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 these terms or 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 and operational targets and the likelihood of achieving the same. 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 applied 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 these earnings calls. The company undertakes no obligation to update any forward-looking statements, whether as a result of or new information, future events, or otherwise. During the call, there may be a discussion of financial metrics that do not conform to U.S. generally accepted accounting principles or GAAP 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 of our website. I would now like to turn the conference over to Tom Schmidt. Please go ahead.

Thank you, David, and good morning to all of you joining us on the call this morning. First things first, congratulations to all our drivers, teammates, and our business partners for making our best quarter ever happen, Q1 2022, and finishing the quarter with a March, that was the best month in the history of our company. In March, we also had, in our core LTL business, three of the highest tonnage weeks in the company's history. So lots of momentum. LTL, inside our expedited freight segment, was actually flirting with a seven as the first digit of operating ratio, ending up at 80.5. And we believe we will get to a... OR in LTL that starts with a seven later this year. Our freight selection, pricing, and our cleansed network keep providing momentum to us. And I want to give you a couple of observation points that show that momentum. The first one has to do with working with our customers and business partners to bring our events business back. Last year, I said, believe 2021, of the 15 to 20% of our LTL business that's events-based, conferences, concerts, tours, cruise lines. Last year, we may have had about 20, 25% of that. Rebecca Garbrick, our CFO, and I, we actually took one of our shareholders to our Atlanta terminal a few weeks ago, and I had not seen this much trade show business, whether it's Orlando-based heading to Las Vegas, this much conference business, trade show business, and also concert business. I'm going to get to that in a moment. The other thing that's really encouraging, we introduced a guaranteed service last year, and we actually, from a positioning perspective, positioned those containers close to the doors, and we have a blue ribbon around them. I had not seen as many blue ribbons as I saw a few weeks ago. Concerts, I was walking the floor and saw container by the band Beach House that was music equipment that just came from Raleigh North Carolina and for the performance here in Atlanta and then heading to Austin the beautiful thing is is one it's a wonderful band you should check it out the more important one for us here is once you actually sell to a band moving their music equipment with high precision execution it's one selling effort which is difficult But once it's done, you literally have 20-plus opportunities from one leg to the next to create revenue opportunities in one of our most profitable business segments. So lots of momentum there. Another observation point about momentum is, as we told you last year, we started selling to small and medium-sized businesses direct. While in the past, we typically went to larger companies as customers, through our great intermediary partners. We're going to continue doing that. And on top of that, we started selling direct. This is not a huge business yet. It may be $20 million or so in revenue this year, but it's highly profitable. And we expect this to be a $100 million plus business in the next one to three years. That's our intention, and we're going to go that route. That position execution in support of highly sensitive events businesses, small, medium-sized shippers with a direct selling effort with no split margins is contributing to our expected 150 to 200 basis points LTL margin improvement both in 2022 and once again in 2023. And you see that quality also reflected in some of our stats. The revenue per ton mile ex-fuel, 17% over same quarter last year. Revenue per hundred weight, ex-fuel, 16% over last year. So there's a lot of quality of freight that has nothing to do with fuel, which did help us, but our volumes and our pricing actions helped us more. One stat, an interesting one also, even if fuel had been at the level of last year's first quarter, we still would have exceeded the high end of guidance for Q1. So this... drive and penetration into our events business, bringing it back again. More small, medium-sized businesses also means we are building out our footprint because we need to. Last couple of years, we added terminals in smaller markets. And this year, later in the year, Q3 or Q4, two large terminals coming online, Atlanta number two and Chicago number three. And we're going to continue building our terminal footprint, both in secondary markets and also large terminals in our primary markets, such as Atlanta and Chicago, in Q3 or Q4. Our supporting businesses, truckload, final mile, inside expedited freight, and intermodal also are making our LTL business better. Whether it's backhauls, co-locating locally, selling complementary services, as an example, today, 94% of our LTL customers also buy truckload from us. Two years ago, that number was 60%. And Final Mile is stepping up in a big way. We already opened three new markets this year, Memphis, Richmond, Philadelphia. That Home Depot Award as Appliance Partner of the Year truly helping us out as a strong sign of approval as the precision execution company in that space also. Intermodal is targeting more BCO customers, meaning also selling more direct, which is the more profitable route to go. And as a consequence, both truckload and final mile are in the mid to high single-digit margin territory inside expedited freight, and intermodal is always a consistent double-revenue growth, double-digit margin. We will drive this continued momentum into Q2 and throughout the year and into next year. If you remember in October, we announced a $630 EPS for 2023, almost 50% more than in 2021. And we have one of our leadership imperatives saying we don't wait. So we actually anticipate pulling that 630 EPS forward from next year to make it this year's number. That enhancement of profitability and growth will continue into 2023. that high end of $670 EPS that we announced in October, we actually expect to achieve next year even without larger acquisitions. For those of you who are following us on a kind of quarter by quarter basis, you will see that as we put guidance out for second quarter of this year, as we put a target out for the full year of 2022, pulling forward to 630 from next year to this year, We did not build in the typical sequential buildup from Q1 to Q2, or even from the first half to the second half, which in essence means for what we're driving, for what we're controlling, they're still upside to what we put out there. Best is still to come. So with that, I want to give it back to you, David, and open it up for questions. And please feel free to go back and forth, because I want to make sure you leave this call with what's most helpful to you. Back to you, David.

Thank you. The floor is now open for questions. To ask a question, please press 1 then 0. Press 1 then 0 to ask a question. We'll now go to Bruce Chan with Stifle. Please go ahead.