Forward Air Corporation

Thank you for joining Forward Air Corporation's fourth 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, excuse me. By now, you should have received the press release announcing our fourth quarter 2022 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, including statements regarding our expected first quarter 2023 and fiscal year 2023. 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 in the press release and webcast presentation relating 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. During the call, there may also be 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. And now I'll turn the call over to Tom Schmidt, CEO of Forward Air.

Thank you, Brad. And good morning to all of you on the call. First things first, a big thank you to all of our teammates, our independent contractor drivers, and our business partners. You did keep our commitment to the best service in the industry with the most intact, damage-free LTL shipments, and I thank you for that. You also delivered a record year in all of our lines of business, top line, bottom line. With EPS here, we are growth by almost 70%. So that's top of the class in our space. Now, still, we did not finish the year the way we expected, and we need to address that. In contrast to many of our peers, we had guided to Q4 to be sequentially better than Q3, and our peak planning efforts with our customers actually supported that guidance. We always poll our top 25 customers or even more going into the fourth quarter, and we felt good about the guidance that we gave. Well, it turned out we have no monopoly to wisdom and not even in concert with our customers as we plan together. We had modeled that the forward 23 actions that we control would more than make up for the shortfall in demand, the overall sluggishness in the economy, and also for fuel coming down. Where we ended up, though, was with the LTL tonnage going down by 13% in the fourth quarter, way more than the single-digit decline we, and frankly, we together with our customers had expected. December was the worst month, and January was equally sluggish. We're talking 15%, 16% down. Now, the most recent weeks were a bit more promising. The most recent week that has a complete peak, we showed at minus 10%. Still, Q1 will be tough. And also, I want to say, despite the Q1 being tough, our story and our drive towards high-value freight still holds. We are keeping all of our LTL customers safe. We're actually adding customers by adding direct shippers. We have more than 200 right now. And that's in the space of small, medium-sized businesses where they do not use forwarders. Even in Q4, the number of LTL shipments held stable. We were down by 0.4%. So it's pretty much the same as last year. The freight mix, as we showed in the release, is getting better and better. Evidence for that is also that on a per-piece basis, the weight increased 12% year-over-year. And we looked at four high-value verticals, and they used to be 18% of our freight mix a year ago, and now they're 29% of our freight mix. Trade shows in the last quarter of Q4 went up by 50% compared to the last quarter of 2021. And finally, what's also important, we get paid for that higher-value freight. Our revenue per hundred weight is up 13%. Q4 or prior year Q4. And so a lot of the journey that we're on works out exactly the way we had intended. The challenge that we have right now that caused the year to end with a quarter that was less than what we expected, significantly less than what we expected, is our shipments that we still have have way fewer pieces than they used to have and that they will have. 20 to 25% fewer pieces. We expect that sometime in Q2, inventories start normalizing and shipment sizes should be normalizing too. At the end of the day, we do not rely on that to happen. We do have our Forward 23 initiatives in place. We have half of them that are focused on growth. We talked about them many times before. Anything from selling more direct to events coming back. We also have initiatives that are focused on cost containment. And we call that forward game shape. And for instance, including dimming and reweighing, which is a huge initiative, as well as cost reductions in travel, reduction in force. We're down by more than 100 people in the last two months alone. And we also have a hiring freeze in place. Also part of GameShape is, for instance, making sure that we use our independent contractor roster as much as possible and we have minimum outside miles. We just updated our Forward 23, Forward Force growth, and Forward GameShape initiatives for impact. At this point, we still believe that we can target to a 2023 that's ahead of 2022 in EPS. That's what the collective initiatives are telling us. We show about a $0.90 EPS headwind from sluggish economy. We show a $0.60 headwind from fuel coming down. But the initiatives collectively, in our minds, will make up for that. Also, please bear in mind, we did buy a beautiful company called Land Air Express. That's helping us also with $0.18 EPS impact that we expect out of that. That's accretive to our model. And as you also know, if the economy keeps being sluggish longer, we tend to have beautiful tuck-in acquisitions, both in intermodal drainage as well as in LTL, that would be on top of those initiatives that we are targeting. So at this point, we still believe that with Forward 23 initiatives in place and updated for the economic slowdown and for the fuel going down, as well as the Landier Express Addition to our team, as well as potential additional acquisitions, we can still target an EPS 2023 ahead of 2022. And by the way, I'd rather shoot to do that and have initiatives in place with first-class team members driving them and getting very, very close than targeting 10 or 20 percent down and starting with that as an in-going proposition. In our models, we can get to an EPS in 2023 that actually is on top of what we had in 2022. So with that, I'm going to turn it over, Brad, back to you. Rebecca and I will take questions.

Thank you. And with that, the floor is now open for questions and answers. If you wish to ask a question, you can press 1 and then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. And if you're using a speakerphone, please pick up the handset before pressing those numbers. Once again, if you have a question, you may press 1 and then 0 at this time. And one moment, please, for our first question. And we'll go to Jack Atkins with Stevens.