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 Schmitt; 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 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, 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 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 Schmitt, 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, and it was. Secondly, I did finish the call last time saying we still expect 2023 PS to top 2022. At this point, I have to say this will not happen. The 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 elaborate on those three statements a bit and 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. We believe based on our own expectations and modeling that the revenue and cost management initiatives would actually make up for the headwinds we are facing both on a sluggish economy front and fuel coming down. Three specific points: we had modeled a 5 percentage point year-over-year LTL tonnage decline. We are currently at minus 5% right now, but we have four months in the books that were actually worse than minus 5. If you remember Q1, as you saw in the release, it was minus 12%. The first part of April was minus 10%. We are now at minus 5 for the last couple of weeks and still going, so it’s better now, but not in the first four months. Secondly, there’s a very important margin driver, and that’s pieces per shipment. The pieces per shipment remain suppressed. We are currently down 16% in lower pieces per shipment today in the first quarter than we were a year ago. That is the issue of fewer shipments coming in, and the shipments that do come in are still lighter. Lastly, fuel has come down faster than what we expected and faster than 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 $6.20 to $6.60 EPS for the year. Let me now address the last part of my statement from 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 is focused on 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 pointed out the growth of our higher value freight verticals including events and 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 full March. For the entire quarter, the weight per piece is actually up year-over-year by 12.7%. We are moving heavier, more nutritious, more valuable freight. The second part of Go Forward was pricing appropriately. Our revenue per ton mile, excluding fuel, is up between 2.5% and 4% for the quarter compared to last year's Q1. Revenue per ton mile ex-fuel is, in my opinion, the best metric for what we get paid for the same effort expanded, and that metric is up. You are getting paid more for the same work that we did a year ago. The third component of Go Forward is operated with precision execution. Customers have been telling us that on their scorecards, we are the best on time, we have the lowest damages, and we're hitting the tightest time windows better than anybody else in the industry. There is about $13 billion to $15 billion of high-value LTL that should appreciate and will appreciate because of that type of differentiation. Thanks to research by SJ Consulting and Ship Matrix, we now know what our customers are telling us for a fact. We are the best in hitting tight time windows and have the lowest damages in the industry. We also continue to operate 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 getting most of the miles available. The fourth piece of Go Forward after high-value freight is making it accessible to a larger customer base. I said recently that our direct shipper LTL customer count topped 200 customers, and that count keeps growing. Q1 2023 is up from Q4 of 2022. So Go Forward is actually fundamentally working. I do realize before we open it up for questions that it’s hard to fully appreciate a Go Forward strategy that is working when we have a de facto miss for the quarter and are guiding down for the year. Still, what our remarkable teammates and independent contractors are doing tells me that when shipment count and size starts normalizing, we can expect to benefit deeply from it, some this year and even more beyond. And with that, back to you, Alan. We're going to open it up for questions.

Thank you. At this time, our first question will be from the line of Jack Atkins from Stephens. Your line is open. Go ahead.

Okay, great. Good morning, Tom. Good morning, Rebecca. Thank you for taking my questions.

Good morning, Jack.

So I guess Tom, if we can maybe start with April, it feels like there's been an improvement in the second half of the month certainly on a year-over-year basis. Is there anything that you can maybe walk us through in terms of helping us to understand what's driving that? Are you seeing improvement in the number of pieces per shipment? Just help us maybe get a better handle on why the second half of April was better than the first half?

Yeah, Jack, everything you just said obviously at face value is correct. So it's been about two and a half weeks since there was a percentage point improvement in our LTL tonnage. As I said, if you look at the first couple of months of the year, frankly, even including into March, it was the same very, very sluggish volume environment that we had seen in November and December. The first part of April was a tiny step up, and then the last two and a half weeks was actually a significant step up. What happened here is we are working with our best customers tremendously closely. Our sales team has never been more engaged in getting a larger slice of the pie. Some of those customers are seeing a slight improvement in traffic coming in from Asia, and some of them we are working harder to ensure that their customers appreciate the type of high-value freight movements that benefit from zero damages. One thing Jack, I mean, they’re doing a better job. Our larger customers know us extremely well, taking the sales leaders with them to their customers. I have personally been on sales calls where the customers have joined us in presenting to the end customer. This is $10,000 of high tech equipment, and they have zero propensity for damages. I think that energy is starting to play out more and more. Two weeks, Jack, don't make a trend yet. I do believe from everything we're seeing on a daily basis, it's fairly consistent. That's why we have probably been somewhat cautious. We have not always been conservative in the past about Q2, but what we're seeing is real. It’s the impact from us working with our best customers who know us extremely well, creating a more compelling case for winning more high-value freight together with us. We also have a sales leader who joined us six to nine months ago, Erica Toller, who is helping us with building the small and medium-sized businesses that are not using our value-added intermediaries. That segment is starting to take off too. We're now up to 200 active customers in shipping. Earlier this week, I looked at the shipment count, and there were accounts that had zero shipments a few months ago. They are now shipping regularly. So collectively, that energy of convincing some of our best customers to win more high-value freight with us, along with ramping up those smaller companies that do not use intermediaries is starting to work. So I think that's what we're seeing, Jack. Two and a half weeks is more than a few days, it's not a trend yet, but it looks promising.

Okay, got it. So I guess just if I can follow up on the 2Q guidance commentary Tom, it sounds like the idea was to maybe expect some improvement from a seasonal perspective, but relatively muted versus what you would normally expect to see from the first quarter to the second quarter. Could you maybe expand on the idea that you guys are being a little bit conservative with the outlook?

Yeah. When you say somewhat muted, you and I and Rebecca might be looking at the same thing. So Q1 to Q2, we're showing a small step up. It's about a 15% EPS step up between the actual Q1 once you take the reversal of that benefit accrual out. That’s on the lower end of what we had seen. Last year in Q2 had two extreme events: it was the most pronounced amplification of the freight boom, something I had never seen before. April last year was crazy, June last year was crazy. Secondly, fuel was at all-time high levels last second quarter. So the numbers we had last year are probably not the best comparative measurement. I wouldn't look at the guidance we put out at around $130 to compare to $204. It's up 15% from Q1. I would say personally, I believe this is on the conservative side. I don't want to overestimate and then disappoint. I see real improvements, I see what we are putting out here working. I expect the odds of us beating what we put out to be better than missing, but at the same time, this freight recession has probably been going on for about six months. A typical recession lasts about nine. You would think, which is also what's built into our model, that the second half will see some of that benefit, but I would be somewhat cautious for the second quarter still.

Okay, got it. And then I guess for my last question, just kind of focused on that second half ramp. If I look at the bottom end of the range and take out that $0.24 accrual reversal, it looks like you're assuming over 50% improvement in earnings in the second half versus what the first half, including the guidance would assume. What gives you the confidence to say that you're going to see that type of step up? Is it the macro getting better, is it your internal initiatives really kicking in, what's driving that, Tom?

Let me do a little math here, Jack, and you’re pretty good with numbers too. So if you looked at…

I am a history major, so I'll defer to you on that.

Okay, I think you've given yourself not enough credit. But no, seriously, if you review the first quarter, the actual earnings of the first quarter, as you just correctly pointed out, is $113. Typically, in the first quarter, you multiply by five to estimate for the year because the first quarter is the only quarter that doesn't get on a medal podium from a typical sequential perspective. If you take $113 times five, that gives you $565. Now, what I believe is that we should be fairly confident in saying, considering what we saw in the first quarter is the absolute bottom of the freight recession. The second half of April was better, even the first half of April was slightly better. November and December were edging to go bad but were not as bad as the first quarter collectively was. So if you get to $565, by doing the typical multiplication by five over the first quarter, which would be a completely normal thing to do, I would expect that when you multiply the bottom of the freight recession, you should be able to multiply it by slightly more than five. So the $620 to me is not a stretch because, again, multiplying this quarter by five should yield even more than what reality will bear out.

Okay, well, I hope this is the bottom of the freight recession. I know that, to your point, we would hope that things will get better in the second half, but I'll turn it over to others. Thanks for the time, Tom. Thanks, Rebecca.

Thank you, Jack.

Ms. Boyle, your line is open. Please check your mute feature.

Sorry about that. I didn't hear that my line is open yet. This is actually Joe Hafling on for Stephanie. Good morning, Tom and Rebecca. Thanks for the question.

Good morning, Joe.

I just kind of wanted to quickly follow up on that second half recovery thesis. I'm wondering what you're hearing from your customers about how they are thinking about the second half and how you’re framing the second half recovery based on what you’re hearing from your customers or if it’s your thought that timing wise the nine months versus it's already been sort of a full twelve months?

In contrast to our previous conversation partner, Jack, I'm not a history major. So I wouldn't go just by the nine months. In all fairness, every single customer interaction and every single business partner interaction that we have, we always reference our customers’ pipeline. What we're hearing is that deliveries from Asia to our customers are expected to return to a normal size and normal frequency by the end of this quarter. That's not what every single one of them is saying, but if you had to determine a sort of midpoint, that’s what we’re hearing from the majority of them. We're seeing some of that already happening. Some of our customers even just yesterday differentiated between imports from the Middle East versus those from Asia. Yet the mean expectation we are hearing is that by the end of this quarter, the shipment sizes and frequencies should start normalizing with some of the inventory reductions getting closer to conclusion. I know you analysts have mentioned that some of that inventory depletion may extend into the second half of the year, which is also why we predicted some sluggishness in the second half, but significantly more activity during the first half. We were looking to get that midpoint between seeing the recovery but not overestimating it.

Appreciate that. Is there anything you would call out from an end customer perspective areas that are seeing strengths or weaknesses that are surprising you right now?

The one strength we should be benefiting from is our focus on high-value freight. You remember when we focused on high-value freight, moving from patio wicker furniture to medical equipment. Medical equipment and some higher-end industrial goods are less discretionary or more resilient than typical consumer goods. We are seeing some firmness on the medical equipment side, on the high-tech side, and in less discretionary consumer goods. The second thing I would highlight is events. Our trade shows and concert business is exactly where we expected it to be—significantly up. I think in some lifestyle experiences, consumer experiences and goods are picking up overall in the less discretionary space. Medical equipment is a key example—we see very good trends. People are spending their discretionary income not on additional household items, but rather on life events, along with improvement in the industrial side.

Perfect. I hate to squeeze a third one in but Rebecca, could you walk us through the share repurchase activity in the quarter, tell us where the authorization stands right now and maybe Tom, could you discuss what you're thinking about capital allocation and M&A, what looks interesting to you?

Sure, yeah. We did repurchase during the quarter 475,000 shares, which leaves us with about 1.8 million shares still outstanding under that repurchase program. Using the share price as of last night, it's about over $186 million left that we have available to repurchase. I'll let Tom discuss where we stand from an M&A standpoint, which will drive our share repurchases for the rest of the year.

The one thing I want to highlight is our share repurchases were at an all-time record for the quarter. We bought about $50 million worth, which is the equivalent of the 475,000 shares that Rebecca mentioned. We clearly made a decision to put more of our capital into share repurchase in Q1. We will continue doing that, and at the same time, we are very fortunate that even in a depressed freight cycle, we are still cash flow strong. We will use that cash flow for enhanced share repurchases and also for tuck-in acquisitions that make perfect sense for us. The two primary areas continue to be expedited LTL. Land Air Express was a great addition to our team; JNP Hall two years ago was also a great addition. We also opened several LTL stations and terminals, and we'll continue with that. We just opened a significant one in the Chicago area, that's the third one we have in Chicago right now. If you look at it this way, share repurchase is enhanced but still follows organic growth, LTL terminal expansion, and very specific tuck-in acquisitions. We did a phenomenal job within the model team to fill out some of our geographies in the Pacific Northwest, Edgemont in Mobile, Alabama, and Memphis, Chickasaw. So again, if you consider it this way, organic growth is first, LTL terminal expansion like Chicago is second, tuck-in acquisitions being third, and share repurchases would be the gold, silver, bronze.

Perfect. Thank you so much for all the time, guys. I’ll get back in the queue.

Thank you, Joe.

We'll go next to the line of Scott Group with Wolfe Research. Go ahead.

Hi, this is Jake on for Scott. Thanks for the time.

Hi, Jake.

Hey Tom. So revenue per hundredweight that still declined slightly year-on-year in the first quarter. What’s causing that and do you expect that to continue looking forward into Q2?

Yeah, Jake. The answer is yes, this might continue slightly, but not significantly. The reason is this: revenue per hundredweight is not the best metric. Our length of haul has been getting shorter and that's intentional. When we pursue shorter lengths of haul, we actually have the opportunity to utilize solo drivers, which are more economical and easier to recruit. We appreciate solo drivers and team drivers equally; however, solos are easier to recruit and we can deploy them on shorter distances more readily. We have actively targeted shorter lengths of haul. We've been down in length of haul by 6.7% year-over-year. So when you look at the revenue per hundredweight excluding fuel, that doesn't reflect that because it is agnostic to distance. It shows a smaller number because we charge less for it. But that's an imperfect metric. The quality of that revenue continues to improve, and revenue per ton mile is a much more relevant metric we should be using more frequently.

That's all helpful. Could you give monthly tonnage in the quarter? I’m not sure if you gave a consolidated April number, but if you could provide that as well, that’d be helpful?

Yeah. For January, our daily tonnage was down about 16%. For February, we saw some improvement; it was down only 9%. For March, it was down to 11%. As for April, we have not provided a consolidated number, but the blend between the 12% that we talked about and the 5% gets us roughly to about an 8% decline year-over-year.

Alright, that’s helpful. Thanks, guys.

Thank you, Jack.

We'll move on to Chris Kuhn with Benchmark. Please go ahead.

Hey, Tom. Hey, Rebecca, good morning.

Good morning, Chris.

Tom, Rebecca, last quarter, you guys went through the headwinds and then some of the efficiency measures offset some of that headwind. Are those efficiencies basically the same, it’s just the headwinds are a bit more or could you touch on that briefly?

Yeah, what we did over the last five to six months is look at last year, and where we ended up on an adjusted EPS of $7.18. We looked at 2023, forecasting that the sluggish economy and decreasing fuel would cost us somewhere in the neighborhood of $1.50 EPS. We outlined the revenue initiatives which we call Forward Force, and the cost management initiatives, Forward Game Shape. We assigned estimates to those initiatives' potential impact. Both of them were approximately equal, each making up about $0.70 to $0.85, respectively. This meant we thought these initiatives would counterbalance the headwinds from fuel and the sluggish economy. As you may have noticed, we are continuously updating the EPS bridges monthly. We saw that the headwinds from fuel and the sluggish economy were heavier than expected. Therefore, the revenue initiatives, specifically those engaging more with our core customers, were negatively impacted by this sluggish economy. Most of the cost management measures are effectively working. The execution quality of Go Forward is still operating well, but the suppression of volumes pulls the overall impact down.

Okay, alright, Tom. Thanks. Yeah, we’ll talk later. Thank you.

Thanks, Chris.

And we have no further questions in queue at this time, you may proceed.

Okay, well, Alan, thank you so much, and also thank you to those of you who listened in and who have been partnering with us, not just as thought partners but as action partners, making this remarkable company work the way it does. We are in a freight recession. We are not out of it yet. And I look forward to having calls when we actually see all of the Go Forward high-quality freight priced appropriately operated in a very clean precision execution environment, and made accessible to more customers and working even better with our existing partners. It happened at full throttle. We'll get there together. Thank you for your support and for the business partnership. And with that, Alan, we're concluding this call.

Thank you. That concludes Forward Air’s first quarter 2023 earnings conference call. Please remember that this webcast will be available on the investor relations section of Forward Air’s website at www.forwardaircorp.com shortly after this call. You may now disconnect.