Forward Air Corporation

Thank you for joining Forward Air Corporation's second 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 CFO Tom Schmidt and, I'm sorry, CEO Tom Schmidt and CFO Rebecca Garbrick. By now, you should have received the press release announcing our second quarter 2023 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 Legislation 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 regarding our expected third 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 that 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 in the Investors tab of our website. And now I'll turn the call over to Tom Schmidt, CEO of Forward Air.

Thank you, John, and good morning to all of you on the call. Let me lead off with five points before opening it up for questions and comments. The first point, we just finished the third disappointing quarter in a row. It's been a very tricky freight recession for our team and our customers, and it came in phases. We have seen the worst in our main show, the LTL business, in the fourth quarter of last year, and also in the first quarter of this year. Truckload and brokerage, as often in a freight recession, has had a prolonged demand and pricing low. And as we started coming out of the low for the LTL business in the second quarter, our intermodal drainage business saw its bottom for both its core revenue, but also for its accessorial services, especially the storage fees. The second point I want to make upfront is Grow Forward is working. That's our initiative that's focusing us on high-value freight, priced appropriately, in a very, very clean, best-in-industry operating environment, and made accessible increasingly to a larger customer base. As I said on the last call, it's working, and we won't see the full results in 2023 yet. Our industry-leading best service from best on-time performance, 99%, to lowest damages, claim ratio of 0.1%, it matters when you deal with shipments of consequence. And still, as we saw in the freight recession, customers do trade down. We saw that with our year-over-year tonnage. If you go back all the way to the last quarter of last year and the very beginning of this year, our tonnage per day was down 15%. For the full first quarter, it was down by 12%. Second quarter, we just finished, 7% down. Most recently, we've seen a lot of kind of close to flat and very, very positive trend. This week, so far, we're seeing plus 7% year-over-year tonnage. The freight mix also keeps getting better as well with the weight per piece and the weight per shipment going up. The third point I want to make up front, the yellow impact will accelerate the momentum. And at this point, I do have to start with just a personal note, as I know quite a few people who actually worked at this iconic company, Yellow. I do feel for the thousands who gave their all for so many years, 99 years I think in total, at this iconic company, and I truly hope and wish that many of those great professionals will find another great professional home soon. On a pure business front, capacity leaving the market will further cement pricing discipline in our industry, and we clearly will be part of a very disciplined pricing group. We also should see some volume benefits in the more dense lanes and for shipments that benefit from our industry-leading precision execution. This week's plus 7% year-over-year tonnage is a good observation of that. Fourth point I want to make up front, and this is more to myself, I do need to get better in forecasting in dynamic, challenging times like we're in. And we need to get back to be more conservative and then beat expectations. In that spirit, we are still cautious when we guide towards Q3. Intermodal and truckloads will still have ways to go to get back into full swing. There is LTL momentum. It's building, but we still want to be cautious about the size of that momentum. Import volumes for many of our best business partners and customers are still very subdued. And then finally, before we open it up, point number five, I want to just give you a little bit of a perspective. Sometimes it's important and right to be self-critical. At the same time, it's also important to have some perspective. Let's put this year, 2023, arguably the worst freight year in 15 years into a bit of a context. 2021, just two years ago, was the first of two unprecedented freight boom years. And at the time when we finished 2021, we actually finished with by far our best earnings per share in the history of our company at the time. That was just two years ago. In an absolute freight bust year, 2023, we still easily expect to beat that 2021 boom year EPS number. That means we're not where we will be yet, but it just means a bit of perspective sometimes helps too. And with that, back over to you, John, and we're going to open it up for thoughts, comments, and questions.

Thank you. Ladies and gentlemen, for the best audio quality, if you are using a speakerphone, a headset, or a Bluetooth-connected device, we do ask that you switch to your handset before offering your questions or comments. To join the queue, to ask a question or provide comment, please press 1, then 0 on your phone's keypad. And you may withdraw your question or comment by pressing 10 again. Once again, to join the queue, it's 10 on your phone's keypad. And we will go first to Jack Adkins. Go ahead, please.