Forward Air Corporation

Thank you for joining Forward Air Corporation's first quarter 2023 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 2023 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, and other matters that are not historical facts, including statements regarding our expected second 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 and 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 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 on the Investors tab of our website. And now I'll turn the call over to Tom Schmidt, CEO of Forward Air.

Thank you, Alan, and good morning to all of you on the call. I want to take you back to three statements I made on the earnings call three months ago. The first statement was I said Q1 will be tough also. It was. Secondly, I did finish the call last time saying we still expect 2023 EPS to top 2022. At this point, I have to say this will not happen. Third statement was, our drive to be the best in high-value freight holds, and that is very much still the case. Let me just unpeel all of those three statements a bit, and let me start with the first two, the quarter and the year. If you remember, on the last call, we reviewed an earnings bridge, an EPS bridge, where we had revenue initiatives and cost containment initiatives, forward force and forward game shape. And we believe, based on our own expectations and our modeling, that the revenue and cost management initiatives would actually make up for the headwinds that we are facing, both on a sluggish economy front and fuel coming down. Three specific points. We had modeled a five percentage point year-over-year LTL tonnage decline. We actually are at minus 5 percent right now, But we have four months in the books that were actually worse than minus five. If you remember Q1, as you saw in the release, minus 12%. First part of April was minus 10%. We are at minus five now, now for the last couple of weeks and still going. So better now, but not in the first four months. Secondly, there's a very, very important margin driver, and that's pieces per shipment. And that pieces per shipment remains suppressed. We are currently down 16% lower pieces per shipment today, first quarter, than we were a quarter a year ago. That is the issue of fewer shipments coming in and the shipments that do come in are still lighter. And lastly, fuel has come down faster than what we expected and faster than the Washington Institute had predicted. As a result of all those headwinds, when we do the EPS bridge reconciliation, we had to revise our target of beating last year. We're now looking at a target of 620 to 660 EPS for the year. Let me go to the last part of my statement that I made on the last call. That statement was, our drive to be the best in high-value LTL still holds. And that is true. Our Go Forward program is actually fundamentally working. This program, let me just remind you, is high-value freight, priced appropriately, operated with precision execution, and made accessible to an increasing group of customers. Let me take those four points in turn. First, high-value freight. I did point out the growth of our higher-value freight verticals, including events, medical equipment on the last call. We went for the four top categories from 18% to 29% of our total freight mix. That continues while slightly below for the quarter in March of this year, our weight per shipment was very much in line with last year's boom March. And here's the good one. For the entire quarter, the weight per piece is actually up year over year by 12.7%. It's heavier, more nutritious, more valuable freight that we're moving. The second part of Grow Forward was pricing appropriately. Our revenue per ton mile, and that's excluding fuel, is up between 2.5% and 4% for the quarter. That's for airport to airport and door to door, respectively, compared to last year's Q1. Revenue per ton mile X fuel, in my mind, is pound for pound the best metric for what we get paid for for the same effort expended. And that metric is up. We're getting paid more for the same work that we've done a year ago. The third component of Grow Forward is operated with precision execution. Here, the point that comes in is our customers have been telling us that on their scorecards, we are the best on time, we have the lowest damages, we're hitting the tightest time windows better than anybody else in the industry. And there is about $13 to $15 billion of high-value LTL that should appreciate and will appreciate that type of differentiation. Thanks to the industry research work by SJ Consulting and Ship Matrix, we now know what those customers are telling us for a fact. We are the best in hitting tie-time windows. We have the lowest damages in the industry. We also continue operating with precision execution in our day-to-day operations. We have record low outside miles, ensuring that our independent contractors who know us and our customers best are the ones that getting most of the miles available. The fourth piece of go forward after high value freight priced appropriately operated with precision execution is making it accessible to a larger customer base. I said recently that our direct chipper LTL customer count topped 200 customers. That count keeps growing. Q1 2023 is up from Q4 of 2022. So, grow forward is actually fundamentally working. Now, I do realize, before we open it up for questions, it's hard to fully appreciate a grow forward strategy that is working when we have a de facto miss for the quarter and we're guiding down for the year. And still, everything our remarkable teammates and independent contractors are doing tells me that when shipment count and size starts normalizing, we can expect to deeply benefit from it. some this year, and way more beyond. And with that, back to you, Alan, and we're going to open it up for questions.

Thank you. The floor is now open for questions and comments. If you would like to queue up, please press 1 then 0 on your telephone keypad. You'll hear an indication you've been placed into the queue, and you may remove yourself from the queue by repeating the 1 then 0 command. If you're on a speakerphone, We ask that you please pick up your handset and make certain your phone is unmuted before pressing any buttons. You may ask as many questions as you would like before we move on to the next caller. Again, for questions, press 1, then 0 at this time. Our first question will be from the line of Jack Atkins from Stevens. Your line is open. Go ahead.