Forward Air Corporation

Thank you for joining Forward Air Corporation's second 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 Gabryk. By now, you should have received the press release announcing our second quarter 2022 results, which was furnished to the SEC on form 8-K 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, 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 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 relating 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 and the likelihood of achieving the same. These statements are not a guarantee for 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 relating to this earnings call. the company undertakes no obligation at any forward-looking statements, whether as a result of new information, future events, or otherwise. During the call, there may also 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 investor tab on our website. And now I'll turn the call over to Tom Schmidt, CEO of Forward Air.

Thank you so much, Connie. And good morning to all of you on the call. First, I want to just say we keep getting better. And when I say we, I mean our teammates and our business partners. And those business partners certainly include our drivers and our customers. It's a true team sport. Remember on our last earnings call, we celebrated our first quarter of this year as our best quarter ever, finishing with a March that had a record 80.5 LTL-OR. Well, in this call, we're doing an encore. We are celebrating our best quarter ever, ending with a June with a record 80.3 LTL-OR. We talked about the goodness behind those numbers on the last call too. That goodness is still here, only a bit more of it. The best example is visibly when you walk through our LTL terminals, visibly more events business. We guesstimated that about $200 million of our LTL revenue before COVID is events related. And it's ramping up to that again. It may not get to 100%. I previously had estimated this year would be 70%, 75%, but it's looking pretty darn impressive. And it is high value freight. Oftentimes when we sell events business, it actually is generating several revenue events. We sell to a host event company once, and then we have up to 20 trips the 20 revenue events associated with it, national trade shows, concert tours are good examples. And sometimes these shipments come with the guarantee to be written around it, which means extra premium freight on top of the high-value freight to begin with. Our grow-forward strategy, higher-value freight priced correctly and operated in an efficient, clean, operating environment, which we started three years ago, is clearly working. On our last call three months ago, we said that the 630 EPS we targeted for 2023, we will already achieve this year in 2022. Remember, we said we don't wait. Now with six months under our belts for 2022, we feel confident that shooting for at least $7 EPS this year is realistic. And while we have not reset a 2023 guidance yet, we expect us to continue to get better. Now, when you step back, what gives us that confidence? We do see the slowdown in the economy. And fuel has started very slightly, but has started to come down. And still, as a company, we have become more resilient and better. A good example is when you look at our revenue per shipment this quarter versus same quarter last year, up by 40%. Even when you strip fuel out of it, it is still up 26% this quarter versus same quarter last year. So I would say if there is a recession, bring it on. Oftentimes it feels like waiting for something is more scary than the event itself. So back to that confidence, we have a specific Forward 23 initiative in place. Inside that forward trade, we manage our key revenue and margin initiatives very tightly. And at this point, we still believe for this year and for next year that what we call the puts outweigh the takes. Specifically, as we mentioned, six large positive factors. The first one I mentioned before, more events. The second one, and more events this year and probably even more next year. because we're selling now not just to the domestic forwarders that have beautiful events divisions. We also go to some small events companies directly. Secondly, selling more direct overall in all of our lines of business. Third, deeper penetration into our core traditional customers. We have done a great job, and my hats off to our customers, They've done a great job tag-teaming with some of our legacy traditional customers that know us well and we know them well to go after more high-value freight together with them. Fourth, fewer outside brokered miles. I always said we love working with our independent contractors who know us and our customers well. Right now, about 12% of our total miles line hauled in LTL, we skip the outsides. carriers that we don't know so well. We do a great job, but that's not our regular roster. That number of 12% is less than half of what it was in the first quarter, and I expect, thanks to our operations and HR teams, for that number, the 12%, to go down, not up. So that's the fourth positive put. Number five, our three supporting business lines, intermodal, truckload, and final mile, have become more and more effective. making our LTL main show better. For instance, now in final mile even, we have local synergies, which we've always had, and on top of that, we have driving line haul business for our LTL business. Sixth and finally, those supporting business lines are getting better and better pound for pound themselves. We published our quarterly results. Just check out our intermodal division and their results for the quarter, it's spectacular. So that's why we believe when we run our Forward 23 model for this year and for next year, that $7 is the minimum for this year. There's a cushion on top of that. And we expect to get better in FY23 because we believe what we control, these puts, are outweighing those takes. I also mentioned that we have a ton of confidence, pun intended, in our company and into our business. So our good practice of returning capital to our shareholders, we are continuing in 2022 also, and that includes significant buybacks and also dividends which we recently raised. So we are, as a team, living our 10 leadership imperatives. One of those 10 is called we remove the ceiling. So we are removing the ceiling and getting better and better every single day. and we strive to keep getting better. So with that, back to you, Tony, and we're going to open it up to questions right away.

Thank you, ladies and gentlemen. If you wish to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question today, please press 1, then 0 at this time. And our first question will come from the line of Bruce Chan with Stifle. Please go ahead.